<PAGE> 1
As filed with the Securities and Exchange Commission on August 1, 2000
Securities Act No. 33-44964
Investment Company Act File No. 811-6526
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
--
Post-Effective Amendment No. 73 [X]
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 75 [X]
--
THE COVENTRY GROUP
------------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (614) 470-8000
-----------------
Patrick W.D. Turley, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, D.C. 20006
----------------------
(Name and Address of Agent for Service)
With Copies to:
---------------
R. Jeffrey Young
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
It is proposed that this filing will become effective immediately upon filing
pursuant to paragraph (b) of Rule 485.
<PAGE> 2
LOGO
CLASS A & CLASS B
SHARES
---------------
PROSPECTUS DATED AUGUST 1, 2000
---------------
SHELBY COUNTY TRUST BANK
Investment Adviser
SMC CAPITAL, INC.
Sub-Investment Adviser
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
QUESTIONS?
Call 1-800-774-3529 or your
investment representative.
<PAGE> 3
THE SHELBY FUND TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
GRAPHIC RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this 3 The Shelby Fund
important section for a
summary of the Fund's
investment, risks and fees.
GRAPHIC INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
This section contains 5 Investment Objective
details on the Fund's 5 Policies and Strategies
investment strategies and 6 Investment Risks
risks.
GRAPHIC SHAREHOLDER INFORMATION
Consult this section to 7 Pricing of Fund Shares
obtain details on how shares 7 Purchasing and Adding to Your Shares
are valued, how to purchase, 10 Selling Your Shares
sell and exchange shares, 13 Distribution Arrangements/Sales Charges
related charges and payments 16 Dividends, Distributions and Taxes
of dividends.
GRAPHIC FUND MANAGEMENT
Review this section for 17 The Investment Adviser and Sub-Investment Adviser
details on the people and 17 Portfolio Managers
organizations who oversee 17 The Distributor and Administrator
the Fund and its
investments.
GRAPHIC FINANCIAL HIGHLIGHTS
Review this section for 18 Financial Highlights
details on the selected
financial statements of the
Fund.
</TABLE>
Please Note: Class B Shares are not currently being offered for sale.
2
<PAGE> 4
[ICON]
RISK/RETURN SUMMARY AND FUND EXPENSES
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The Fund seeks capital appreciation.
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES equity securities that the Fund's Sub-Adviser believes are
likely to achieve superior growth in earnings. This growth
is typically generated by increasing unit volume and
expanding margins derived from developing new products,
services and markets. The companies selected may be of
various market capitalizations as long as the growth
potential is significantly greater than average.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS with market conditions, so will the value of your investment
in the Fund. You could lose money on your investment in the
Fund, or the Fund could underperform other investments. Some
of the Fund's holdings may underperform its other holdings.
The Fund may invest in shares of relatively new and smaller
companies and shares of these types of companies may be more
volatile than those of larger, more established issuers.
WHO MAY Consider investing in the Fund if you are:
WANT TO INVEST? - investing for a long-term goal such as retirement (five
year or longer investment horizon)
- looking to add a growth component to your portfolio
- willing to accept higher risks of investing in the stock
market in exchange for potentially higher long term returns
This Fund will not be appropriate for someone:
- seeking monthly income
- pursuing a short-term goal or investing emergency reserves
- seeking safety of principal
FUND Because the classes of shares of the Fund offered in this
PERFORMANCE Prospectus have not yet completed a full calendar year of
investment operations, fund performance information is not
presented.
</TABLE>
3
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER FEES (FEES PAID
DIRECTLY FROM YOUR INVESTMENT) A SHARES B SHARES(4)
Maximum Sales Charge (load)
Imposed on Purchases 4.75%(1) None
Maximum Deferred Sales Charge
(load) None 5.00%(2)
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management Fees 1.00% 1.00%
Distribution and Service (12b-1)
Fees 0.25% 1.00%
Other Expenses(3) 0.45% 0.45%
Total Fund Operating Expenses 1.70% 2.45%
</TABLE>
(1) Lower sales charges are available
depending upon the amount invested. See
"Distribution Arrangements."
(2) The Contingent Deferred Sales Charge
("CDSC") imposed on Class B Shares if
you sell your shares before a certain
period of time has elapsed declines over
five years starting with year one and
ending in year six as follows: 5%, 4%,
3%, 2%, 1%.
(3) The Administrator is waiving a portion
of the Administrative fee so that Other
Expenses are expected to be 0.39%. TOTAL
FUND OPERATING EXPENSES AFTER THIS FEE
WAIVER ARE EXPECTED TO BE 1.64% AND
2.39% FOR CLASS A AND B SHARES,
RESPECTIVELY. These expense limitations
may be revised or canceled at any time.
(4) Class B Shares are not currently being
offered for sale.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $640 $ 985 $1,354 $2,388
CLASS B SHARES
Assuming Redemption $761 $1,195 $1,532 $2,601
Assuming no Redemption $248 $ 764 $1,306 $2,601
</TABLE>
This table describes the fees
and expenses that you may
pay if you buy and hold
shares of the Fund.
Use this table to compare fees
and expenses with those of
other Funds. It illustrates
the amount of fees and
expenses you would pay,
assuming the following:
- $10,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the Fund's
operating expenses
- reinvestment of dividends
and distributions
Because this example is
hypothetical and for
comparison purposes only,
your actual costs will be
different.
4
<PAGE> 6
GRAPHIC
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation.
POLICIES AND STRATEGIES
The Sub-Adviser pursues the Fund's investment objective by investing in a
diversified portfolio of equity securities, including relatively new or
unseasoned ones, that the Sub-Adviser believes are likely to achieve superior
growth in earnings. This growth is typically generated by increasing unit
volume and expanding margins derived from developing new products, services
and markets. The companies selected may be of various market capitalizations
as long as the growth potential, in the Sub-Adviser's judgment, is
significantly greater than average. The Fund will seek to take advantage of
market volatility when fluctuations in securities' prices seem unjustified.
In order to achieve this goal, positions may be initiated or increased when
price declines occur or positions will be sold or reduced on price advances
that appear unwarranted. This policy may well result in higher portfolio
turnover than would otherwise be the case. There can be no assurances that
the Fund will achieve its investment objective. This Fund is not appropriate
for investors seeking predictable income or short-term preservation of
capital.
Consistent with the Fund's investment objective, the Fund:
- invests substantially all, but in no event less than 65%, of the value of
its total assets in equity securities
- invests in the following types of equity securities: common stocks,
preferred stocks, securities convertible into common stocks, warrants and
any rights to purchase common stocks
- may engage in short sales against the box
- may invest in fixed income securities consisting of corporate notes,
bonds and debentures that are rated investment grade at the time of
purchase
- may invest in obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government
- may invest in the securities of foreign issuers and may acquire sponsored
and unsponsored American Depositary Receipts and European Depositary
Receipts
- may invest in convertible securities that are securities which are
convertible into or exchangeable for common stock
- may engage in repurchase transactions pursuant to which the Fund
purchases a security and simultaneously commits to resell that security
to the seller (either a bank or a securities dealer) at an agreed upon
price on an agreed upon date (usually within seven days of purchase)
- may engage in options transactions
- may engage in futures transactions as well as invest in options on
futures contracts solely for hedging purposes
- may lend securities to qualified brokers, dealers, banks and other
financial institutions for the purpose of realizing additional income
5
<PAGE> 7
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- may purchase securities on a when-issued or delayed-delivery basis in
which a security's price and yield are fixed on a specific date but
payment and delivery are scheduled for a future date beyond the standard
settlement period
- may invest in other investment companies
In the event that the Adviser determines that current market conditions are
not suitable for the Fund's typical investments, the Adviser may instead, for
temporary defensive purposes during such unusual market conditions, invest
all or any portion of the Fund's assets in money market instruments and
repurchase agreements.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, including the
possible loss of the principal amount invested.
Generally, the Fund will be subject to the following risks:
EQUITY RISK: The value of the equity securities held by the Fund, and thus of
the Fund's shares, can fluctuate -- at times dramatically. The prices of
equity securities are affected by various factors, including market
conditions, political and other events, and developments affecting the
particular issuer or its industry or geographic sector. The fact that the
Adviser follows a specific discipline can provide no assurance against a
decline in the value of the Fund's shares.
MARKET RISK: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performance per share will change daily based on many factors,
including the quality of the instruments in the Fund's investment portfolio,
national and international economic conditions and general market conditions.
CREDIT RISK: Credit risk refers to the risk related to the credit quality of
the issuer of a security held in the Fund's portfolio. The Fund could lose
money if the issuer of a security is unable to meet its financial
obligations.
SMALL-CAP RISK: Small capitalization companies may not have the size,
resources or other assets of large capitalization companies. These small
capitalization companies may be subject to greater market risks and
fluctuations in value than large capitalization companies and may not
correspond to changes in the stock market in general.
FOREIGN INVESTMENT RISK: The Fund may invest in foreign securities which
involve investment risks different from those associated with domestic
securities. Foreign investments may be riskier than U.S. investments because
of unstable international political and economic conditions, foreign controls
on investment and currency exchange rates, withholding taxes, or a lack of
adequate company information, lack of liquidity, and lack of government
regulation.
Investments in the Fund are not deposits of Shelby County Trust Bank or any
of its affiliates and are not insured or guaranteed by the Federal Deposit
Insurance Corporation (the "FDIC") or any other government agency.
Please see the Statement of Additional Information for more information about
these investment policies.
6
<PAGE> 8
GRAPHIC
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
----------------------------------------
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of
the Fund's investments and
other assets, subtracting
its liabilities and then
dividing that figure by the
number of outstanding
shares of the Fund:
NAV =
Total Assets - Liabilities
----------------------------
Number of Shares
Outstanding
You can find each Fund's
NAV daily in The Wall
Street Journal and other
newspapers.
---------------------------
Per share net asset value (NAV) for
the Fund is determined and its shares
are priced at the close of regular
trading on the New York Stock
Exchange, or at 4:00 p.m. Eastern time
on days the Exchange is open,
whichever is earlier.
Your order for purchase, sale or
exchange of shares is priced at the
next NAV calculated after your order
is accepted by the Fund plus any
applicable sales charge as noted in
the section on "Distribution
Arrangements/Sales Charges." This is
what is known as the offering price.
The Fund's securities are generally
valued at current market prices. If
market quotations are not available,
prices will be based on fair value as
determined by the Fund's Trustees.
- PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<S> <C> <C>
MINIMUM
INITIAL MINIMUM
ACCOUNT TYPE INVESTMENT SUBSEQUENT
Class A and Class B $1,000 $250
</TABLE>
All purchases must be in U.S. dollars. A fee
will be charged for any checks that do not
clear. Third-party checks are not accepted.
The Fund may waive its minimum purchase
requirement and the Distributor may reject a
purchase order if it considers it in the
best interest of the Fund and its
shareholders.
You may purchase the Fund
through the Distributor or
through investment
representatives, who may
charge additional fees and
may require higher minimum
investments or impose
other limitations on
buying and selling shares.
If you purchase shares
through an investment
representative, that party
is responsible for
transmitting orders by
close of business and may
have an earlier cut-off
time for purchase and sale
requests. Consult your
investment representative
for specific information.
7
<PAGE> 9
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "The Shelby Fund."
3. Mail to: The Shelby Fund, PO Box 182698, Columbus, OH 43218-2698
Subsequent:
1. Use the investment slip attached to your account statement. Or, if
unavailable,
2. Include the following information on a piece of paper:
- Fund name
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: THE SHELBY FUND, PO Box 182698,
Columbus, OH 43218-2698
BY OVERNIGHT SERVICE
SEE INSTRUCTIONS 1-2 ABOVE FOR SUBSEQUENT INVESTMENTS.
4. Send to: THE SHELBY FUND, c/o BISYS Fund Services, Attn: Shareholder
Services, 3435 Stelzer Road, Columbus, OH 43219
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be
a United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-800-774-3529. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-800-774-3529 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow
financial institutions to
send funds to each other,
almost instantaneously.
With an electronic
purchase or sale, the
transaction is made
through the Automated
Clearing House (ACH) and
may take up to eight days
to clear. There is
generally no fee for ACH
transactions.
8
<PAGE> 10
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
For initial investment:
Call 1-800-774-3529 to place your order and receive a confirmation number.
You will be asked to fax your application and send the original in the mail.
Follow the instructions below after receiving your confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Name of Bank: Fifth Third Bank, Cincinnati
Routing Number: ABA #042000314
DDA #717-26917
Include:
Your name
Your confirmation number
AFTER INSTRUCTING YOUR BANK TO WIRE THE FUNDS, CALL 1-800-774-3529 TO ADVISE
US OF THE AMOUNT BEING TRANSFERRED AND THE NAME OF YOUR BANK
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any
time with 60 days notice.
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Fund from your bank account.
Automatic investments can be as little as $250, once you've invested the
$1,000 minimum required to open the account.
To invest regularly from your bank account:
* Complete the Automatic Investment Plan portion on your Account
Application.
Make sure you note:
- Your bank name, address and ABA number
- Your checking or savings account number
- The amount you wish to invest automatically (minimum $250)
- How often you want to invest (every month, 4 times a year, twice a
year or once a year)
- Attach a voided personal check or savings deposit slip.
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested dividends and
distributions. Dividends are higher for Class A shares than for Class B
shares, because Class A shares have lower distribution expenses. Capital
gains are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A
DISTRIBUTION AND MAY BE SUBJECT TO INCOME TAX.
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9
<PAGE> 11
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING SHARES
You may sell your shares
at any time. Your sales
price will be the next NAV
after your sell order is
received by the Fund, its
transfer agent, or your
investment representative.
Normally you will receive
your proceeds (less any
applicable contingent
deferred sales charge)
within a week after your
request is received. See
section on "General
Policies on Selling
Shares" below.
BY TELEPHONE (unless you have declined telephone sales privileges)
1. Call 1-800-774-3529 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer).
BY MAIL
1. Call 1-800-774-3529 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: THE SHELBY FUND, P.O. Box 182698, Columbus, OH 43218-2698
BY OVERNIGHT SERVICE
SEE INSTRUCTION 1 ABOVE.
2. Send to: THE SHELBY FUND, c/o BISYS Fund Services, Attn: Shareholder
Services, 3435 Stelzer Road, Columbus, OH 43219
WIRE TRANSFER
You must indicate this option on your application.
Call 1-800-774-3529 to request a wire transfer.
If you call by 4 p.m. Eastern time or the close of the NYSE, whichever is
earlier, your payment will normally be wired to your bank on the next
business day.
The Fund may charge a wire transfer fee.
Note: Your financial institution may also charge a separate fee.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
When you sell Class B shares, you will be charged a fee for any shares that have
not been held for a sufficient length of time. These fees will be deducted from
the money paid to you. See the section on "Distribution Arrangements/ Sales
Charges" below for details.
10
<PAGE> 12
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly or
quarterly basis. The minimum withdrawal is $50. To activate this feature:
- Make sure you've checked the appropriate box and completed the Automatic
Withdrawal section of the Account Application. Or call 1-800-774-3529.
- Include a voided personal check.
- Your account must have a value of $10,000 or more to start withdrawals.
- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000.
No CDSC will be assessed on redemptions made in accordance with this feature
that do not exceed 12% of an account's net asset value on an annualized
basis. For example, monthly and quarterly redemptions will not be subject to
a CDSC if they do not exceed 1% or 3%, respectively, of an account's net
asset value on the redemption date. Any redemptions in accordance with this
feature in excess of this limit are still subject to the applicable CDSC.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of
the following.
- Redemptions over $50,000
- Your account registration or the name(s) in your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 10 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has
cleared (which may require up to 10 business days). You can avoid this delay
by purchasing shares with a wire transfer or a certified check.
11
<PAGE> 13
SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
CONTINUED
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 1% of the Fund's net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind
will consist of securities equal in market value to your shares. When you
convert these securities to cash, you will pay brokerage charges.
SMALL ACCOUNT FEE
Because of the high cost of maintaining small accounts the Fund may assess a
quarterly fee of $5 on all accounts with a balance below $2,000 for the
quarter.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
your account at the current NAV.
12
<PAGE> 14
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and fees you will pay as an investor
in the Funds and ways to qualify for reduced sales charges.
<TABLE>
<S> <C> <C>
CLASS A SHARES CLASS B SHARES
Sales Charge (Load) Front-end sales charge; reduced No front-end sales charge. A
sales charges available. contingent deferred sales charge
(CDSC) may be imposed on shares
redeemed within six years after
purchase; shares automatically
convert to Class A Shares after 8
years. Maximum investment is
$250,000.
Distribution and Subject to annual distribution and Subject to annual distribution and
Service (12b-1) Fee shareholder servicing fees of up shareholder servicing fees of up
to .25% of the Fund's total to 1.00% of the Fund's assets.
assets.
Fund Expenses Lower annual expenses than Class B Higher annual expenses than Class
shares. A shares.
</TABLE>
CALCULATION OF SALES CHARGES
CLASS A SHARES
Class A shares are sold at their public offering price. This price includes
the initial sales charge. Therefore, part of the money you invest will be
used to pay the sales charge. The remainder is invested in Fund shares. The
sales charge decreases with larger purchases. There is no sales charge on
reinvested dividends and distributions.
The current sales charge rates for the Fund is as follows:
<TABLE>
<CAPTION>
AMOUNT OF SALES
CHARGE REALLOWED
SALES CHARGE SALES CHARGE TO DEALERS AS A
YOUR AS A % OF AS A % OF PERCENTAGE OF PUBLIC
INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.25%
$25,000 but less than $100,000 4.50% 4.71% 4.25%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 1.00% 1.01% 0.75%
$1,000,000 and above 0.50% 0.50% 0.25%
</TABLE>
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<PAGE> 15
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B SHARES
Class B shares of the Fund are offered at NAV, without any up-front sales
charge. Therefore, all the money you invest is used to purchase Fund shares.
However, if you sell your Class B shares of the Fund before the sixth
anniversary of purchase, you will have to pay a contingent deferred sales
charge at the time of redemption. The CDSC will be based upon the lower of
the NAV at the time of purchase or the NAV at the time of redemption
according to the schedule below. There is no CDSC on reinvested dividends or
distributions.
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
-----------------------------------------------------------------------------------------
<S> <C>
0-2 5.00%
2-3 4.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
more than 6 None
</TABLE>
If you sell some but not all of your shares, certain shares not subject to
the CDSC (i.e., shares purchased with reinvested dividends) will be redeemed
first, followed by shares subject to the lowest CDSC (typically shares held
for the longest time).
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A shares are available to shareholders with
investments of $25,000 or more. In addition, you may qualify for reduced
sales charges under the following circumstances.
LETTER OF INTENT -- You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced sales
charge. You must include a minimum of 5% of the total amount you intend to
purchase with your letter of intent.
RIGHTS OF ACCUMULATION -- When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for reduced
sales charges, your added investment will qualify for the reduced sales
charge.
SALES CHARGE WAIVERS
The sales charge will not apply to purchases of Class A shares by:
(1) BISYS or any of its affiliates;
(2) Trustees or officers of the Fund:
(3) directors or officers of BISYS or the Adviser or Sub-Adviser, or
affiliates or bona fide full-time employees of any of the foregoing who
have acted as such for not less than 90 days (including members of their
immediate families and their retirement plans or accounts);
14
<PAGE> 16
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
(4) retirement accounts or plans (or monies from retirement accounts or
plans) for which there is a written service agreement between the Group
or Distributor and the plan sponsors, so long as such shares are
purchased through the Fund; or
(5) any person purchasing shares within approved asset allocation or "wrap
fee" programs sponsored by a financial services organization.
The sales charge also does not apply to shares sold to representatives of
selling brokers and members of their immediate families.
The Distributor and the Adviser, at their expense, may provide compensation
to dealers in connection with sales of Shares of the Fund. Shares sold
subject to the waiver of the Contingent Deferred Sales Charge are not
eligible for the payment of such compensation.
REINSTATEMENT PRIVILEGE
If you have sold Class A or B shares and decide to reinvest in the Fund
within a 90 day period, you will not be charged the applicable sales load on
amounts up to the value of the shares you sold. You must provide a written
reinstatement request and payment within 90 days of the date your
instructions to sell were processed.
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and
distribution of the Fund's shares and/or for providing shareholder services.
12b-1 fees are paid from Fund assets on an ongoing basis, and will increase
the cost of your investment.
- The 12b-1 fees vary by share class as follows:
- Class A shares pay a 12b-1 fee of up to .25% of the average daily net
assets of a Fund.
- Class B shares pay a 12b-1 fee of up to 1.00% of the average daily net
assets of the applicable Fund. This will cause expenses for Class B
shares to be higher and dividends to be lower than for Class A shares.
- The higher 12b-1 fee on Class B shares, together with the CDSC, help the
Distributor sell Class B shares without an "up-front" sales charge. In
particular, these fees help to defray the Distributor's costs of
advancing brokerage commissions to investment representatives.
- The Distributor may use up to .25% of the 12b-1 fee for shareholder
servicing and up to .75% for distribution.
Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution and service fees.
15
<PAGE> 17
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of dividends is paid out, less
expenses, to shareholders. Income dividends on the Fund are usually paid
quarterly. Capital gains for the Fund are distributed at least annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
Dividends are taxable as ordinary income. Taxation on capital gains will vary
with the length of time the Fund has held the security -- not how long the
shareholder has been in the Fund.
Dividends are taxable in the year in which they are declared, even if they
are paid and appear on your account statement the following year.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
16
<PAGE> 18
[ICON]
FUND MANAGEMENT
THE INVESTMENT ADVISER AND SUB-INVESTMENT ADVISER
Shelby County Trust Bank, Shelbyville, Kentucky 40066, (the "Adviser"), is
the investment adviser for the Fund. Shelby County Trust Bank was organized
in 1881, is a full service bank and trust company and is a wholly-owned
subsidiary of Commonwealth Bancshare Inc. of Shelbyville, Kentucky. SMC
Capital, Inc., Louisville, Kentucky 40207 (the "Sub-Adviser"), is the
sub-investment adviser for the Fund and has been engaged to provide
day-to-day investment advisory services to the Fund. SMC Capital, Inc. is a
registered investment adviser established in 1993.
For the fiscal year ended March 31, 2000, the Fund paid the Adviser 1.00% of
its average daily net assets for these advisory services and the Adviser paid
the Sub-Adviser out of its fees.
PORTFOLIO MANAGERS
The following individuals serve as portfolio managers for the Fund and are
primarily responsible for the day-to-day management of the Fund's portfolio:
<TABLE>
<S> <C>
Darrell R. Wells Chairman and Chief Executive Officer of SMC Capital, Inc.,
Harvard University, A.B. (1965); SMC Capital, Inc.
(1993-present); Security Management Company (1972-present).
James C. Shircliff, CFA Executive Vice-President and Director of Research of SMC
Capital, Inc., University of Louisville, B.S. (1972); SMC
Capital, Inc. (1997-present); Executive Investment Advisors
(1992-1997); Southeastern Asset Management (1986-1991);
Oppenheimer Management Company (1985-1986); Oppenheimer and
Company (1983-1985); First Kentucky Trust Company
(1973-1983).
Richard A. Beck Senior Vice President of SMC Capital, Inc., University of
Louisville, B.S., (1991); Babson University, M.B.A. (1999);
SMC Capital, Inc. (1999-present); Backstage Pass Magazine
(1998-1999); Harle Wehde Associates (1997-1998); Stride Rite
Corporation (1992-1996).
</TABLE>
The Statement of Additional Information has more detailed information about
the Adviser, the Sub-Adviser and other service providers.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services is the Fund's distributor and BISYS Fund Services Ohio,
Inc. is the Fund's administrator. Their address is 3435 Stelzer Road,
Columbus, Ohio 43219.
CAPITAL STRUCTURE -- The Coventry Group was organized as a Massachusetts
business trust on January 8, 1992 and overall responsibility for the
management of the Fund is vested in the Board of Trustees. Shareholders are
entitled to one vote for each full share held and a proportionate fractional
vote for any fractional shares held and will vote in the aggregate and not by
series except as otherwise expressly required by law. An annual or special
meeting of shareholders to conduct necessary business is not required by the
Coventry Group's Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances. Absent such circumstances, the Coventry
Group does not intend to hold annual or special meetings.
The Fund offers three Classes of Shares, Class A, Class B and Class Y Shares,
each of which have different expenses that affect performance. For further
information, telephone the Distributor at (800) 774-3529.
17
<PAGE> 19
[Graphic] FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance. The table below sets forth information for the Fund's
Class A Shares for the period from October 28, 1999 (commencement of
operations of the Class A Shares) through March 31, 2000. Class B Shares were
not offered during this period. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned on an investment in the Class A
Shares of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP,
whose report, along with the Fund's financial statements, are included in the
annual report of the Fund, which is available upon request.
<TABLE>
<CAPTION>
CLASS A
-----------------
OCTOBER 28, 1999
TO
MARCH 31, 2000(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.38
-------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.03)
Net realized and unrealized gains (losses) on investments 8.51
-------------------------------------------------------------------------------
Total from investment operations 8.48
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income --
From net capital gains (0.68)
-------------------------------------------------------------------------------
Total distributions (0.68)
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $20.18
-------------------------------------------------------------------------------
TOTAL RETURN (EXCLUDES SALES CHARGE) 74.29%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $ 54
Ratio of expenses to average net assets 1.64%(c)
Ratio of net investment income (loss) to average net
assets (1.42%)(c)
Ratio of expenses to average net assets* 1.70%(c)
Portfolio turnover rate 122.25%(c)
</TABLE>
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(a) Period from commencement of operations.
(b) Aggregate total return.
(c) Annualized.
18
<PAGE> 20
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 21
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 22
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 23
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
YOU CAN RECEIVE FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION
AND DISCUSS YOUR QUESTIONS ABOUT THE FUND BY CONTACTING A BROKER THAT SELLS THE
FUND. OR CONTACT THE FUND AT:
THE SHELBY FUND
C/O BISYS FUND SERVICES
P.O. BOX 182698
COLUMBUS, OHIO 43218-2698
TELEPHONE: 1-800-774-3529
You can review the Fund's reports and the SAI at the Public Reference Room of
the Securities and Exchange Commission. You can get text-only copies:
- For a duplication fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-202-942-8090, or by
electronic request by e-mailing the Commission at the following address:
[email protected].
- Free from the EDGAR Database on the Commission's Website at
http://www.sec.gov.
Investment Company Act file no. 811-6526.
SHEL 0002800
<PAGE> 24
QUESTIONS?
Call 1-800-774-3529 or your
investment representative.
[SHELBY LOGO]
CLASS Y SHARES
---------------
PROSPECTUS DATED AUGUST 1, 2000
---------------
SHELBY COUNTY TRUST BANK
Investment Adviser
SMC CAPITAL, INC.
Sub-Investment Adviser
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 25
THE SHELBY FUND TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
Carefully review this 3 The Shelby Fund
important section for a
summary of the Fund's
investment, risks and fees.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[ICON]
This section contains 6 Investment Objective
details on the Fund's 6 Policies and Strategies
investment strategies and 7 Investment Risks
risks.
SHAREHOLDER INFORMATION
[ICON]
Consult this section to 8 Pricing of Fund Shares
obtain details on how shares 8 Purchasing and Adding to Your Shares
are valued, how to purchase, 11 Selling Your Shares
sell and exchange shares, 13 Dividends, Distributions and Taxes
related charges and payments
of dividends.
FUND MANAGEMENT
[ICON]
Review this section for 14 The Investment Adviser and Sub-Investment Adviser
details on the people and 14 Portfolio Managers
organizations who oversee 14 The Distributor and Administrator
the Fund and its
investments.
FINANCIAL HIGHLIGHTS
[ICON]
Review this section for 15 Financial Highlights
details on the selected
financial statements of the
Fund.
</TABLE>
2
<PAGE> 26
[ICON]
RISK/RETURN SUMMARY AND FUND EXPENSES
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The Fund seeks capital appreciation.
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES equity securities that the Fund's Sub-Adviser believes are
likely to achieve superior growth in earnings. This growth
is typically generated by increasing unit volume and
expanding margins derived from developing new products,
services and markets. The companies selected may be of
various market capitalizations as long as the growth
potential is significantly greater than average.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS with market conditions, so will the value of your investment
in the Fund. You could lose money on your investment in the
Fund, or the Fund could underperform other investments. Some
of the Fund's holdings may underperform its other holdings.
The Fund may invest in shares of relatively new and smaller
companies and shares of these types of companies may be more
volatile than those of larger, more established issuers.
WHO MAY Consider investing in the Fund if you are:
WANT TO INVEST? - investing for a long-term goal such as retirement (five
year or longer investment horizon)
- looking to add a growth component to your portfolio
- willing to accept higher risks of investing in the stock
market in exchange for potentially higher long term returns
This Fund will not be appropriate for someone:
- seeking monthly income
- pursuing a short-term goal or investing emergency reserves
- seeking safety of principal
</TABLE>
3
<PAGE> 27
RISK/RETURN SUMMARY AND FUND EXPENSES
PERFORMANCE BAR CHART AND TABLE(1)
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
[GRAPH]
<TABLE>
<CAPTION>
%
---
<S> <C>
1990 -1.42
91 42.18
92 32.27
93 14.11
94 2.58
95 35.34
96 13.96
97 6.23
98 12.77
99 56.03
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns. Of
course, past performance does not indicate
how the Fund will perform in the future.
Best quarter: Q1
1991 +33.95%
Worst quarter: Q3
1998 -21.12%
AVERAGE ANNUAL TOTAL
RETURNS
(for the periods ending
December 31, 1999)(5)
The chart and table on this
page show how the Class Y
Shares of the Fund have
performed and how their
performance has varied from
year to year. The bar chart
shows changes in the Fund's
yearly performance for each
of the last ten years to
demonstrate that the Fund's
value varied at differing
times. The table below it
compares the Fund's
performance over time to
that of its primary
benchmark the S&P 500(R)
Index(2) and also to the
Russell 2000 Index.(3) The
quoted performance for the
Fund includes the
performance of certain
common trust funds and
collective investment funds
(the "Commingled Funds")
that were previously
managed with full
investment authority by the
Fund's Adviser and
Sub-Adviser prior to the
establishment of the Fund
on July 1, 1994. The assets
of the Commingled Funds
were converted into assets
of the Fund upon the
establishment of the
Fund.(4)
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
THE SHELBY FUND 1/1/81 56.03% 23.58% 20.13% 16.93%
S&P 500(R) INDEX(2) 1/1/81 21.04% 28.55% 18.20% 17.16%
RUSSELL 2000 INDEX(3) 1/1/81 21.26% 16.69% 13.40% 12.79%
</TABLE>
(1) Both the chart and table assume reinvestment of dividends and distributions.
(2) A widely recognized, unmanaged index of common stocks generally
representative of the stock market as a whole.
(3) An unmanaged index of small and mid-capitalization common stocks.
(4) The Fund's investment objective and policies are substantially similar to
those of the Commingled Funds. The Commingled Funds were not registered
under the Investment Company Act of 1940 (the "1940 Act") and therefore they
were not subject to certain investment restrictions imposed by the 1940 Act.
If the Commingled Funds had been registered under the 1940 Act, their
performance might have been adversely affected.
(5) For the period January 1, 2000 through June 30, 2000, the aggregate
(non-annualized) total return was 11.48% versus -0.42% for the S&P 500
Index(2) and 3.04% for the Russell 2000 Index(3).
4
<PAGE> 28
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID
DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (load)
Imposed on Purchases None
Maximum Deferred Sales Charge
(load) None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management Fees 1.00%
Distribution and Service (12b-1)
Fees None
Other Expenses* 0.64%
Total Fund Operating Expenses* 1.64%
</TABLE>
* The Administrator is waiving a portion of
the Administration fee so that Other
Expenses are expected to be 0.59%. TOTAL
FUND OPERATING EXPENSES AFTER THIS FEE
WAIVER ARE EXPECTED TO BE 1.59%. This
expense limitation may be revised or
canceled at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
THE SHELBY FUND $417 $1,293 $2,229 $4,859
</TABLE>
This table describes the fees
and expenses that you may
pay if you buy and hold
shares of the Fund.
Use this table to compare fees
and expenses with those of
other Funds. It illustrates
the amount of fees and
expenses you would pay,
assuming the following:
- $25,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the Fund's
operating expenses
- reinvestment of dividends
and distributions
Because this example is
hypothetical and for
comparison purposes only,
your actual costs will be
different.
5
<PAGE> 29
[ICON]
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
TICKER SYMBOL: SHELX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation.
POLICIES AND STRATEGIES
The Sub-Adviser pursues the Fund's investment objective by investing in a
diversified portfolio of equity securities, including relatively new or
unseasoned ones, that the Sub-Adviser believes are likely to achieve superior
growth in earnings. This growth is typically generated by increasing unit
volume and expanding margins derived from developing new products, services
and markets. The companies selected may be of various market capitalizations
as long as the growth potential, in the Sub-Adviser's judgment, is
significantly greater than average. The Fund will seek to take advantage of
market volatility when fluctuations in securities' prices seem unjustified.
In order to achieve this goal, positions may be initiated or increased when
price declines occur or positions will be sold or reduced on price advances
that appear unwarranted. This policy may well result in higher portfolio
turnover than would otherwise be the case. There can be no assurances that
the Fund will achieve its investment objective. This Fund is not appropriate
for investors seeking predictable income or short-term preservation of
capital.
Consistent with the Fund's investment objective, the Fund:
- invests substantially all, but in no event less than 65%, of the value of
its total assets in equity securities
- invests in the following types of equity securities: common stocks,
preferred stocks, securities convertible into common stocks, warrants and
any rights to purchase common stocks
- may engage in short sales against the box
- may invest in fixed income securities consisting of corporate notes,
bonds and debentures that are rated investment grade at the time of
purchase
- may invest in obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government (excluding U.S. Treasury
instruments)
- may invest in the securities of foreign issuers and may acquire sponsored
and unsponsored American Depositary Receipts and European Depositary
Receipts
- may invest in convertible securities which are securities that are
convertible into or exchangeable for common stock
- may engage in repurchase transactions pursuant to which the Fund
purchases a security and simultaneously commits to resell that security
to the seller (either a bank or a securities dealer) at an agreed upon
price on an agreed upon date (usually within seven days of purchase)
- may engage in options transactions
6
<PAGE> 30
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- may engage in futures transactions as well as invest in options on
futures contracts solely for hedging purposes
- may lend securities to qualified brokers, dealers, banks and other
financial institutions for the purpose of realizing additional income
- may purchase securities on a when-issued or delayed-delivery basis in
which a security's price and yield are fixed on a specific date but
payment and delivery are scheduled for a future date beyond the standard
settlement period
- may invest in other investment companies
In the event that the Adviser determines that current market conditions are
not suitable for the Fund's typical investments, the Adviser may instead, for
temporary defensive purposes during such unusual market conditions, invest
all or any portion of the Fund's assets in money market instruments and
repurchase agreements.
INVESTMENT RISKS
An investment in the Fund is subject to investment risks, including the
possible loss of the principal amount invested.
Generally, the Fund will be subject to the following risks:
EQUITY RISK: The value of the equity securities held by the Fund, and thus of
the Fund's shares, can fluctuate - at times dramatically. The prices of
equity securities are affected by various factors, including market
conditions, political and other events, and developments affecting the
particular issuer or its industry or geographic sector. The factor that the
Adviser follows a specific discipline can provide no assurance against a
decline in the value of the Fund's shares.
MARKET RISK: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performance per share will change daily based on many factors,
including the quality of the instruments in the Fund's investment portfolio,
national and international economic conditions and general market conditions.
CREDIT RISK: Credit risk refers to the risk related to the credit quality of
the issuer of a security held in the Fund's portfolio. The Fund could lose
money if the issuer of a security is unable to meet its financial
obligations.
SMALL-CAP RISK: Small capitalization companies may not have the size,
resources or other assets of large capitalization companies. These small
capitalization companies may be subject to greater market risks and
fluctuations in value than large capitalization companies and may not
correspond to changes in the stock market in general.
FOREIGN INVESTMENT RISK: The Fund may invest in foreign securities which
involve investment risks different from those associated with domestic
securities. Foreign investments may be riskier than U.S. investments because
of unstable international political and economic conditions, foreign controls
on investment and currency exchange rates, withholding taxes, or a lack of
adequate company information, lack of liquidity, and lack of government
regulation.
Investments in the Fund are not deposits of Shelby County Trust Bank or any
of its affiliates and are not insured or guaranteed by the Federal Deposit
Insurance Corporation (the "FDIC") or any other government agency.
Please see the Statement of Additional Information for more information about
these investment policies.
7
<PAGE> 31
[ICON]
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
----------------------------------------
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of
the Fund's investments and
other assets, subtracting
its liabilities and then
dividing that figure by the
number of outstanding
shares of the Fund:
NAV =
Total Assets - Liabilities
---------------------------
Number of Shares
Outstanding
You can find the Fund's NAV
daily in The Wall Street
Journal and other
newspapers.
---------------------------
Per share net asset value (NAV) for the Fund is determined and its shares are
priced at the close of regular trading
on the New York Stock Exchange, or at
4:00 p.m. Eastern time on days the
Exchange is open, whichever is
earlier.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is
accepted by the Fund. This is what is
known as the offering price.
The Fund's securities are generally valued at current market prices. If market
quotations are not available, prices
will be based on fair value as
determined by the Fund's Trustees.
PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<S> <C> <C>
MINIMUM
INITIAL MINIMUM
ACCOUNT TYPE INVESTMENT SUBSEQUENT
Class Y $25,000 $500
</TABLE>
All purchases must be in U.S. dollars. A fee
will be charged for any checks that do not
clear. Third-party checks are not accepted.
The Fund may waive its minimum purchase
requirement and the Distributor may reject a
purchase order if it considers it in the
best interest of the Fund and its
shareholders.
You may purchase the Fund
through the Distributor or
through investment
representatives, who may
charge additional fees and
may require higher minimum
investments or impose
other limitations on
buying and selling shares.
If you purchase shares
through an investment
representative, that party
is responsible for
transmitting orders by
close of business and may
have an earlier cut-off
time for purchase and sale
requests. Consult your
investment representative
for specific information.
8
<PAGE> 32
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "The Shelby Fund."
3. Mail to: THE SHELBY FUND, PO Box 182698, Columbus, OH 43218-2698
Subsequent:
1. Use the investment slip attached to your account statement. Or, if
unavailable,
2. Include the following information on a piece of paper:
- Fund name
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: THE SHELBY FUND, PO Box 182698,
Columbus, OH 43218-2698
BY OVERNIGHT SERVICE
SEE INSTRUCTIONS 1-2 ABOVE FOR SUBSEQUENT INVESTMENTS.
4. Send to: The Shelby Fund, c/o BISYS Fund Services, Attn: Shareholder
Services, 3435 Stelzer Road, Columbus, OH 43219
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be
a United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-800-774-3529. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-800-774-3529 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an
electronic purchase or
sale, the transaction is
made through the
Automated Clearing House
(ACH) and may take up to
eight days to clear.
There is generally no fee
for ACH transactions.
9
<PAGE> 33
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
For initial investment:
Call 1-800-774-3529 to place your order and receive a confirmation number.
You will be asked to fax your application and to send the original in the
mail. Follow the instructions below after receiving your confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Name of Bank: Fifth Third Bank, Cincinnati
Routing Number: ABA #042000314
DDA# 717-26917
Include:
Your name
Your confirmation number
AFTER INSTRUCTING YOUR BANK TO WIRE THE FUNDS, CALL 1-800-774-3529 TO ADVISE
US OF THE AMOUNT BEING TRANSFERRED AND THE NAME OF YOUR BANK
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any
time with 60 days notice.
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. Capital gains are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A
DISTRIBUTION AND MAY BE SUBJECT TO INCOME TAX.
-----------------------------------------------------------------------------
10
<PAGE> 34
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING SHARES
You may sell your shares
at any time. Your sales
price will be the next NAV
after your sell order is
received by the Fund, its
transfer agent, or your
investment representative.
Normally you will receive
your proceeds within a
week after your request is
received. See section on
"General Policies on
Selling Shares" below.
BY TELEPHONE (unless you have declined telephone sales privileges)
1. Call 1-800-774-3529 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer).
BY MAIL
1. Call 1-800-774-3529 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: THE SHELBY FUND, Attn: Shareholder Services, P.O. Box 182698,
Columbus, OH 43218-2698
BY OVERNIGHT SERVICE
SEE INSTRUCTION 1 ABOVE.
2. Send to: THE SHELBY FUND, c/o BISYS Fund Services Ohio, Inc., 3435 Stelzer
Road, Columbus, OH 43219
WIRE TRANSFER
You must indicate this option on your application.
Call 1-800-774-3529 to request a wire transfer.
If you call by 4 p.m. Eastern time, or the close of the NYSE, whichever is
earlier, your payment will normally be wired to your bank on the next
business day.
The Fund may charge a wire transfer fee.
Note: Your financial institution may also charge a separate fee.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is
also known as redeeming shares or a
redemption of shares.
11
<PAGE> 35
SHAREHOLDER INFORMATION
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly or
quarterly basis. The minimum withdrawal is $50. To activate this feature:
- Make sure you've checked the appropriate box and completed the Automatic
Withdrawal section of the Account Application. Or call 1-800-774-3529.
- Include a voided personal check.
- Your account must have a value of $10,000 or more to start withdrawals.
- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Account ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of
the following.
- Redemptions over $50,000
- Your account registration of the name(s) in your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 10 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has
cleared (which may require up to 10 business days). You can avoid this delay
by purchasing shares with a wire transfer or a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
12
<PAGE> 36
SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
CONTINUED
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 1% of the Fund's net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind
will consist of securities equal in market value to your shares. When you
convert these securities to cash, you will pay brokerage charges.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
your account at the current NAV.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of dividends is paid out, less
expenses, to shareholders. Income dividends on the Fund are usually paid
quarterly. Capital gains for the Fund are distributed at least annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
Dividends are taxable as ordinary income. Taxation on capital gains will vary
with the length of time the Fund has held the security -- not how long the
shareholder has been in the Fund.
Dividends are taxable in the year in which they are declared, even if they
are paid and appear on your account statement the following year.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
13
<PAGE> 37
[ICON]
FUND MANAGEMENT
THE INVESTMENT ADVISER AND SUB-INVESTMENT ADVISER
Shelby County Trust Bank, Shelbyville, Kentucky 40066, (the "Adviser"), is
the investment adviser for the Fund. Shelby County Trust Bank was organized
in 1881, is a full service bank and trust company and is a wholly-owned
subsidiary of Commonwealth Bancshare Inc. of Shelbyville, Kentucky. SMC
Capital, Inc., Louisville, Kentucky 40207 (the "Sub-Adviser"), is the
sub-investment adviser for the Fund and has been engaged to provide
day-to-day investment advisory services to the Fund. SMC Capital, Inc. is a
registered investment adviser established in 1993.
For the fiscal year ended March 31, 2000, the Fund paid the Adviser 1.00% of
its average daily net assets for these advisory services and the Adviser paid
the Sub-Adviser out of its fees.
PORTFOLIO MANAGERS
The following individuals serve as portfolio managers for the Fund and are
primarily responsible for the day-to-day management of the Fund's portfolio:
<TABLE>
<S> <C>
Darrell R. Wells Chairman and Chief Executive Officer of SMC Capital, Inc.,
Harvard University, A.B. (1965); SMC Capital, Inc.
(1993-present); Security Management Company (1972-present).
James C. Shircliff, CFA Executive Vice-President and Director of Research of SMC
Capital, Inc., University of Louisville, B.S. (1972); SMC
Capital, Inc. (1997-present); Executive Investment Advisors
(1992-1997); Southeastern Asset Management (1986-1991);
Oppenheimer Management Company (1985-1986); Oppenheimer and
Company (1983-1985); First Kentucky Trust Company
(1973-1983).
Richard A. Beck Senior Vice President of SMC Capital, Inc., University of
Louisville, B.S. (1991); Babson University, M.B.A. (1999);
SMC Capital, Inc. (1999-present); Backstage Pass Magazine
(1998-1999); Harle Wehde Associates (1997-1998); Stride Rite
Corporation (1992-1996).
</TABLE>
The Statement of Additional Information has more detailed information about
the Adviser, the Sub-Adviser and other service providers
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services is the Fund's distributor and BISYS Fund Services Ohio,
Inc. is the Fund's administrator. Their address is 3435 Stelzer Road,
Columbus, Ohio 43219.
CAPITAL STRUCTURE -- The Coventry Group was organized as a Massachusetts
business trust on January 8, 1992 and overall responsibility for the
management of the Fund is vested in the Board of Trustees. Shareholders are
entitled to one vote for each full share held and a proportionate fractional
vote for any fractional shares held and will vote in the aggregate and not by
series except as otherwise expressly required by law. An annual or special
meeting of shareholders to conduct necessary business is not required by the
Coventry Group's Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances. Absent such circumstances, the Coventry
Group does not intend to hold annual or special meetings.
The Fund offers three Classes of shares, Class A, Class B and Class Y Shares,
each of which have different expenses that affect performance. For further
information, telephone the Distributor at (800) 774-3529.
14
<PAGE> 38
[ICON]
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance. The table below sets forth information for the Fund's
Class Y Shares for each of the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment
in the Class Y Shares of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP,
whose report, along with the Fund's financial statements, are included in the
annual report of the Fund, which is available upon request.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.53 $ 13.66 $ 11.13 $ 11.82 $ 10.99
-------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.16) (0.10) (0.15) (0.09) (0.06)
Net realized and unrealized gains
(losses) on investments 9.39 1.07 4.40 (0.19) 3.44
-------------------------------------------------------------------------------------------------------
Total from investment operations 9.23 0.97 4.25 (0.28) 3.38
-------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income -- -- -- -- --
From net capital gains (0.68) (3.10) (1.72) (0.41) (2.55)
-------------------------------------------------------------------------------------------------------
Total distributions (0.68) (3.10) (1.72) (0.41) (2.55)
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 20.08 $ 11.53 $ 13.66 $ 11.13 $ 11.82
-------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charge) 82.50% 10.82% 39.31% (2.80)% 31.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $68,417 $38,204 $90,544 $90,137 $95,357
Ratio of expenses to average net
assets 1.59% 1.48% 1.29% 1.29% 1.33%
Ratio of net investment income (loss)
to average net assets (1.18)% (0.67)% (0.95)% (0.67)% (0.58)%
Ratio of expenses to average net
assets* 1.64% 1.53% 1.34% 1.34% 1.38%
Portfolio turnover rate 122.25% 161.45% 176.66% 204.06% 292.28%
</TABLE>
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
15
<PAGE> 39
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<PAGE> 40
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<PAGE> 41
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 42
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
YOU CAN RECEIVE FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION
AND DISCUSS YOUR QUESTIONS ABOUT THE FUND BY CONTACTING A BROKER THAT SELLS THE
FUND. OR CONTACT THE FUND AT:
THE SHELBY FUND
C/O BISYS FUND SERVICES
P.O. BOX 182698
COLUMBUS, OHIO 43218-2698
TELEPHONE: 1-800-774-3529
You can review the Fund's reports and the SAI at the Public Reference Room of
the Securities and Exchange Commission. You can get text-only copies:
- For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-202-942-8090, or by electronic
request by e-mailing the Commission at the following address:
[email protected].
- Free from the EDGAR Database on the Commission's Website at
http://www.sec.gov.
Investment Company Act file no. 811-6526.
SHEL 0001800
<PAGE> 43
The Shelby Fund
An Investment Portfolio of
The Coventry Group
Statement of Additional Information
August 1, 2000
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with each respective prospectus for the Shelby Fund (the "Fund"),
dated the same date as the date hereof (the "Prospectus"). The Fund is a
separate investment portfolio of The Coventry Group (the "Group"), an open-end
management investment company. This Statement of Additional Information is
incorporated in its entirety into the Prospectus and relates to each of the
Fund's three share classes: the Class A Shares, the Class B Shares and the Class
Y Shares. Copies of the Prospectus may be obtained by writing the Fund, c/o
BISYS Fund Services, at 3435 Stelzer Road, Columbus, Ohio 43219, or by
telephoning toll free (800) 774-3259.
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES........................................3
Additional Information on Portfolio Instruments.......................3
Investment Restrictions...............................................9
Portfolio Turnover...................................................11
NET ASSET VALUE.........................................................11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................12
Matters Affecting Redemption.........................................12
MANAGEMENT OF THE GROUP.................................................12
Trustees and Officers................................................12
Investment Adviser and Sub-Adviser...................................15
Portfolio Transactions...............................................16
Administrator........................................................18
Distributor..........................................................19
Custodian............................................................20
Transfer Agency and Fund Accounting Services.........................20
Independent Auditors.................................................21
Legal Counsel........................................................21
ADDITIONAL INFORMATION..................................................21
Description of Shares................................................21
Vote of a Majority of the Outstanding Shares.........................22
Additional Tax Information...........................................22
Calculation of Performance Data......................................25
Performance Comparisons..............................................28
Principal Shareholders...............................................29
Miscellaneous........................................................29
FINANCIAL STATEMENTS....................................................29
</TABLE>
-2-
<PAGE> 45
STATEMENT OF ADDITIONAL INFORMATION
THE COVENTRY GROUP
The Coventry Group (the "Group") is an open-end management investment
company which issues its Shares in separate series. Each series of Shares
relates to a separate portfolio of assets. This Statement of Additional
Information deals only with the Fund.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the Fund.
Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of the Fund should be made without first reading the Fund's
Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objective and policies
of the Fund as set forth in the Prospectus for the Fund.
BANK OBLIGATIONS. The Fund may invest in bank obligations such as
bankers' acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instruments on maturity.
Bankers' acceptances invested in by the Fund will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic and foreign banks and savings and
loan associations, if (i) at the time of investment the depository institution
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (ii) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
The Fund may purchase commercial paper consisting of issues rated at
the time of purchase in the two highest rating categories by a nationally
recognized statistical rating organization ("NRSRO"). For example, the Fund may
purchase commercial paper rated A-2 or better by S&P, Prime-2 or better by
Moody's or Duff 2 or better by Duff & Phelps. The Fund may also invest in
commercial paper that is not rated but is determined by the Adviser, under
guidelines established by the Group's Board of Trustees, to be of comparable
quality.
-3-
<PAGE> 46
COMMON STOCKS. The Fund may invest in common stocks, which include the
common stock of any class or series of domestic corporations or any similar
equity interest, such as a trust or partnership interest. These investments may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure. The Fund may
also invest in warrants and rights related to common stocks.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities,
including debt securities or preferred stock that may be converted into common
stock or that carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time. They also entitle the holder to receive interest or
dividends until the holder elects to exercise the conversion privilege.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holder's claims on assets and earnings are generally subordinate to the
claims of other creditors, and senior to the claims of preferred and common
stockholders. In the case of convertible preferred stock, the holder's claims on
assets and earnings are subordinate to the claims of all creditors and are
senior to the claims of common stockholders. As a result of their ranking in a
company's capitalization, convertible securities that are rated by nationally
recognized statistical rating organizations are generally rated below other
obligations of the company and many convertible securities are not rated.
PREFERRED STOCK. The Fund may invest in preferred stock. Preferred
stock, unlike common stock, offers a stated dividend rate payable from the
issuer's earnings. Preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
the preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
FOREIGN INVESTMENTS. The Fund may, subject to its investment objectives
and policies, invest in certain obligations or securities of foreign issuers.
Permissible investments consist of Eurobonds, which are U.S. dollar denominated
debt securities issued by corporations located in Europe, Eurodollar
Certificates of Deposit, which are U.S. dollar denominated certificates of
deposit issued by branches of foreign and domestic banks located outside the
United States (primarily Europe), Yankee Certificates of Deposit which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States, Eurodollar Time Deposits, which are
U.S. dollar denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits, which are U.S. dollar denominated certificates
of deposit issued by Canadian offices of major Canadian Banks. Investments in
securities issued by foreign branches of U.S. banks, foreign banks, or other
foreign issuers, including American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and securities purchased on foreign securities
exchanges, may subject the Fund to investment risks that differ in some respects
from those related to investment in obligations of U.S. domestic issuers or in
U.S. securities markets. Such risks include future adverse political and
economic developments, possible seizure, currency blockage, nationalization or
expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, and
the adoption of other foreign governmental restrictions. Additional risks
include currency exchange risks, less publicly available information, the risk
that companies may not be subject to the accounting, auditing and financial
reporting standards and requirements of U.S. companies, the risk that foreign
securities markets may have less volume and therefore many securities traded in
these markets may be less liquid and their prices more volatile than U.S.
securities, and the risk that custodian and brokerage costs may be higher.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks. The Fund will acquire
such securities only when the Adviser believes the risks associated with such
investments are minimal.
RIGHTS AND WARRANTS. The Fund may participate in rights offerings and
purchase warrants, which are privileges issued by corporations enabling the
owners to subscribe to and purchase a specified number of shares of the
corporation at a specified price during a specified period of time. Subscription
rights normally have a short life span to expiration. The purchase of rights or
warrants involves the risk that the Fund could lose the purchase value of a
right or warrant if the right to subscribe to additional shares is not exercised
prior to the rights' or
-4-
<PAGE> 47
warrants' expiration. Also, the purchase of rights or warrants involves the risk
that the effective price paid for the right or warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security. The Fund will not invest more than 5% of its total assets, taken at
market value, in warrants, or more than 2% of its total assets, taken at market
value, in warrants not listed on the New York, American or Canadian Stock
Exchanges. Warrants acquired by the Fund in units or attached to other
securities are not subject to this restriction.
MEDIUM-GRADE DEBT SECURITIES. The Fund may invest in debt securities
within the fourth highest rating group assigned by a NRSRO or, if unrated,
securities determined by the Adviser to be of comparable quality ("Medium-Grade
Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of the issuer to make payments of principal and interest.
Medium-Grade Securities are considered to have speculative characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
Because certain Medium-Grade Securities are traded only in markets
where the number of potential purchasers and sellers, if any, is limited, the
ability of the Fund to sell such securities at their fair value either to meet
redemption requests or to respond to changes in the financial markets may be
limited.
Particular types of Medium-Grade Securities may present special
concerns. The prices of payment-in-kind or zero-coupon securities may react more
strongly to changes in interest rates than the prices of other Medium-Grade
Securities. Some Medium-Grade Securities in which the Fund may invest may be
subject to redemption or call provisions that may limit increases in market
value that might otherwise result from lower interest rates while increasing the
risk that the Fund may be required to reinvest redemption or call proceeds
during a period of relatively low interest rates.
The credit ratings issued by NRSROs are subject to various limitations.
For example, while such ratings evaluate credit risk, they ordinarily do not
evaluate the market risk of Medium-Grade Securities. In certain circumstances,
the ratings may not reflect in a timely fashion adverse developments affecting
an issuer. For these reasons, the Adviser conducts its own independent credit
analysis of Medium-Grade Securities.
-5-
<PAGE> 48
RESTRICTED SECURITIES. The Fund may invest up to 5% of its total assets
in restricted securities, excluding restricted securities that are eligible for
resale under Rule 144A under the Securities Act of 1933. Rule 144A under the
Securities Act of 1933 allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A provides a "safe harbor" from the registration requirements of the
Securities Act of 1933 for resales of certain securities to qualified
institutional buyers. The Adviser believes that the market for certain
restricted securities such as institutional commercial paper may expand further
as a result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the NASD.
The Adviser monitors the liquidity of restricted securities in the
Fund's portfolios under the supervision of the Board of Trustees. In reaching
liquidity decisions, the Adviser may consider the following factors, although
such factors may not necessarily be determinative: (1) the unregistered nature
of a security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (4) the trading markets for the security; (5) dealer
undertakings to make a market in the security; and (6) the nature of the
security and the nature of the marketplace trades (including the time needed to
dispose of the security, methods of soliciting offers, and mechanics of
transfer).
SHORT SALES. The Fund may from time to time sell securities short. A
short sale is a transaction in which the Fund sells securities it does not own
(but has borrowed) in anticipation of a decline in the market price of the
securities. To complete a short sale, the Fund must arrange though a broker to
borrow the securities to be delivered to the buyer. The proceeds received by the
Fund from the short sale are retained by the broker until the Fund replaces the
borrowed securities. In borrowing the securities to be delivered to the buyer,
the Fund becomes obligated to replace the securities borrowed at their market
price at the time of replacement, whatever that price may be. The Fund may have
to pay a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker that
consists of cash or obligations of the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"). In addition, the Fund will
place in a segregated account with its custodian an amount of cash or U.S.
Government Securities equal to the difference, if any, between (a) the current
market value of the securities sold, and (b) any cash or U.S. Government
Securities deposited as collateral with the broker in connection with the short
sale (not including the proceeds of the short sale). Until it replaces the
borrowed securities, the Fund will maintain the segregated account daily at a
level so that the amount deposited in the account plus the amount deposited with
the broker (not including the proceeds from the short sale) will equal the
current market value of the securities sold short.
The Fund will incur a loss as a result of a short sale (other than a
short sale against the box, see below) if the price of the security increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. Possible losses from such short sales differ from losses that
could be incurred from a purchase of a security, because losses from such short
sales may be unlimited, whereas losses from purchases of a security can equal
only the total amount invested. Short sales will be limited to no more than 25%
of the total value of the Fund's assets.
SHORT SALES AGAINST THE BOX. The Fund may enter into a short sale of a
security such that, so long as the short position is open, the Fund will own an
equal amount of preferred stock or debt securities, convertible or exchangeable
without payment or further consideration, into an equal number of shares of the
common stock sold short. This kind of short sales, which is described as one
"against the box," will be entered into by the Fund for the purpose of receiving
a portion of the interest earned by the executing broker from the proceeds of
the sale.
SECURITIES LENDING. In order to generate additional income, the Fund
may, from time to time, subject to its investment objective, policies and
restrictions, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities pursuant to agreements requiring that the
loans be secured by collateral equal in value to 102% of the value of the
securities loaned. Collateral for loans of portfolio securities must consist of
cash or Government Related Securities. This collateral will be valued daily by
the Adviser. Should the market value of the loaned securities increase, the
borrower is required to furnish additional collateral to the Fund. During the
time portfolio securities are on loan, the borrower pays the Fund any dividends
or interest received on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While the Fund does not have the right to vote
securities on loan, the Fund intends to terminate the loan and regain the right
to vote if that is considered important with respect to the investment. While
the lending of securities may subject a Fund to certain risks, such as delays or
an inability to regain the securities in the event the borrower were to default
or enter into bankruptcy, the Fund will have the contract right to retain the
collateral described above. The Fund will enter into loan agreements only with
broker-dealers, banks, or other institutions that the Adviser has determined are
creditworthy under guidelines established by the Group's Board of Trustees.
OPTIONS TRADING. The Fund may purchase put and call options listed on a
national securities exchange and issued by the Options Clearing Corporation, or,
in certain cases, options that trade in the over-the-counter ("OTC") markets or
that are listed on a foreign securities exchange. Such options may relate to
particular securities or to various stock or bond indices.
Options trading is a highly specialized activity which entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original investment
-6-
<PAGE> 49
for the purchase of the option. However, options may be more volatile than the
underlying instruments, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves. A listed call option for a particular
security gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A listed put option gives the purchaser
the right to sell to a clearing corporation the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. In contrast to an option on a
particular security, an option on an interest rate index provides the holder
with the right to make or receive a cash settlement upon exercise of the option.
The amount of this settlement will be equal to the difference between the
closing price of the index at the time of exercise and the exercise price of the
option expressed in dollars, times a specified multiple.
When the Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. When the Fund writes a call option, an amount
equal to the net premium (the premium less the commission) received by the Fund
is included in the liability section of the Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
As noted previously, there are several risks associated with
transactions in options on securities, currencies and indices. For example,
there are significant differences between the securities and options markets
that could result in an imperfect correlation between these markets, causing a
given transaction not to achieve its objectives. A decision as to whether, when
and how to use options involves the exercise of skill and judgment, and even a
well conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a
when-issued or delayed-delivery basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield and thereby involve a risk that the yield obtained in the transaction will
be less than those available in the market when delivery takes place. The Fund
will generally not pay for such securities or start earning interest on them
until they are received. When the Fund agrees to purchase securities on a
when-issued basis, the
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<PAGE> 50
Custodian will set aside cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. Normally, the Custodian will set aside
portfolio securities to satisfy the purchase commitment, and in such a case, the
Fund may be required subsequently to place additional assets in the separate
account in order to assure that the value of the account remains equal to the
amount of the Fund's commitment. It may be expected that the Fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. In addition,
because the Fund will set aside cash or liquid portfolio securities to satisfy
its purchase commitments in the manner described above, the Fund's liquidity and
the ability of the Adviser to manage it might be affected in the event its
commitments to purchase when-issued securities ever exceeded 25% of the value of
its assets.
When the Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing the opportunity to obtain a price considered to
be advantageous. The Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with the Fund's investment
objective, policies and restrictions, and not for investment leverage.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers which the Adviser deems creditworthy
under guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain continually the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). If the seller were to default on its
repurchase obligation or become insolvent, the Fund holding such obligation
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by the Fund
were delayed pending court action. Additionally, there is no controlling legal
precedent confirming that the Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Group believes that, under the
regular procedures normally in effect for custody of the Fund's securities
subject to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Group if presented with the question.
Securities subject to repurchase agreements will be held by the Fund's Custodian
or another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by the Fund under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with the
Fund's investment restrictions. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase the securities at a mutually agreed-upon date and price.
The Fund intends to enter into reverse repurchase agreements only to avoid
otherwise selling securities during unfavorable market conditions to
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<PAGE> 51
meet redemptions. At the time the Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account assets such as U.S.
Government securities or other liquid, high grade debt securities consistent
with the Fund's investment restrictions having a value equal to the repurchase
price (including accrued interest), and will subsequently continually monitor
the account to ensure that such equivalent value is maintained at all times.
Reverse repurchase agreements involve the risk that (i) the party obtaining the
securities pursuant to such agreement will be unable to deliver such securities
back to the Fund upon maturity of the agreements, and (ii) the market value of
the securities sold by the Fund may decline below the price at which it is
obligated to repurchase the securities, and the Fund will be unable to liquidate
its position in such securities during such periods of decline. Reverse
repurchase agreements are considered to be borrowings by the Fund under the 1940
Act.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities issued by other investment companies. The Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (i) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (ii) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund. As a shareholder of another investment company, the Fund would bear, along
with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with its own
operations. Investment companies in which the Fund may invest may also impose a
sales or distribution charge in connection with the purchase or redemption of
their shares and other types of commissions or charges. Such charges will be
payable by the Fund and, therefore, will be borne directly by Shareholders.
Investment Restrictions
The following are fundamental investment restrictions that may be
changed only by the affirmative vote of a majority of the outstanding Shares of
the Fund (as defined below). Under these restrictions, the Fund may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, with respect to 75% of its portfolio, more than
5% of the value of the total assets of the Fund would be invested in such
issuer, or the Fund would hold more than 10% of any class of securities of the
issuer or more than 10% of the outstanding voting securities of the issuer.
2. Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (i) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; (ii) wholly owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of their parents; and (iii) utilities will be divided
according to their services. For example, gas, gas transmission, electric and
gas, electric, and telephone will each be considered a separate industry.
-9-
<PAGE> 52
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets at
the time of its borrowing. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
4. Make loans, except that the Fund may purchase or hold debt
securities and lend portfolio securities in accordance with its investments
objective and policies, and may enter into repurchase agreements.
5. Underwrite securities issued by other persons, except to the extent
that the Fund may be deemed to be an underwriter under certain securities laws
in the disposition of "restricted securities".
6. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund.
7. Purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein).
The following additional investment restrictions are non-fundamental
and may be changed with respect to the Fund without the vote of a majority of
the outstanding Shares of the Fund. The Fund may not:
1. Invest more than 15% of its assets (taken at market value at the
time of the investment) in "illiquid securities," illiquid securities being
defined to include securities subject to legal or contractual restrictions on
resale (which may include private placements), repurchase agreements maturing in
more than seven days, certain options traded over the counter that the Fund has
purchased, securities being used to cover options the Fund has written,
securities for which market quotations are not readily available, or other
securities which legally or in the Adviser's opinion may be deemed illiquid.
2. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities.
3. Maintain a short position, or purchase, write or sell puts, calls,
straddles, spreads or combinations thereof, except as set forth in the
Prospectus and in this Statement of Additional Information.
4. Purchase participation or direct interests in oil, gas or other
mineral exploration or development programs (although investments by the Fund in
marketable securities of companies engaged in such activities are not prohibited
in this restriction).
5. Purchase securities of other investment companies, except (i) in
connection with a merger, consolidation, acquisition or reorganization, and (ii)
the Fund may invest up to 10% of
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<PAGE> 53
the value of its total assets in other investment companies, as specified in the
Prospectus and above, subject to such restrictions as may be imposed by the 1940
Act or any state laws.
6. Invest for the purpose of exercising control or management.
If any percentage restriction described above is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction
Portfolio Turnover
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose remaining maturities at the time of acquisition were one
year or less. Portfolio turnover for the Fund may vary greatly from year to year
as well as within a particular year. High turnover rates will generally result
in higher transaction costs to the Fund. Portfolio turnover will not be a
limiting factor in making investment decisions.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of the Fund is
determined and the Shares of the Fund are priced as of the Valuation Time on
each Business Day. A "Business Day" is a day on which the New York Stock
Exchange (the "NYSE") is open for trading and any other day (other than a day on
which no Shares of the Fund are tendered for redemption and no order to purchase
any Shares is received) during which there is sufficient trading in portfolio
instruments such that the Fund's net asset value per share might be materially
affected. The NYSE will not be open in observance of the following holidays: New
Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
Portfolio securities for which market quotations are readily available
are valued based upon their current available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Unlisted securities for which market quotations
are readily available will be valued at the current quoted bid prices. Other
securities and assets for which quotations are not readily available, including
restricted securities and securities purchased in private transactions, are
valued at their fair value in the Adviser's best judgment under procedures
established by, and under the supervision of, the Group's Board of Trustees.
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Fund are the existence of restrictions upon the
sale of the security by the Fund, the absence of a market for the security, the
extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair value. In making
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<PAGE> 54
valuations, opinions of counsel may be relied upon as to whether or not
securities are restricted securities and as to the legal requirements for public
sale.
The Group may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. Certain instruments, for which pricing
services used for the Fund do not provide prices, may be valued by the Group
using methodologies similar to those used by pricing services, where such
methodologies are believed to reflect fair value of the subject security. The
methods used by the pricing service and the Group and the valuations so
established will be reviewed by the Group under the general supervision of the
Group's Board of Trustees. Several pricing services are available, one or more
of which may be used by the Adviser from time to time.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by BISYS Fund
Services Limited Partnership d/b/a BISYS Fund Services (the "Distributor") and
BISYS Fund Services has agreed to use appropriate efforts to solicit all
purchase orders. In addition to purchasing Shares directly from the Distributor,
Shares may be purchased through procedures established by BISYS Fund Services in
connection with the requirements of accounts at Shelby County Trust Bank (the
"Bank").
Matters Affecting Redemption
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (i) trading on the NYSE is restricted
by applicable rules and regulations of the Commission, (ii) the NYSE is closed
for other than customary weekend and holiday closings, (iii) the Commission has
by order permitted such suspension for the protection of security holders of the
Group, or (iv) the Commission has determined that an emergency exists as a
result of which (a) disposal by the Group of securities owned by it is not
reasonably practical, or (b) it is not reasonably practical for the Group to
determine the fair value of its net assets.
The Group may redeem Shares of the Fund involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the 1940 Act.
See "HOW TO PURCHASE AND REDEEM SHARES -- Redemption of Shares" in the
Prospectus.
MANAGEMENT OF THE GROUP
Trustees and Officers
Overall responsibility for management of the Group rests with its Board
of Trustees, which is elected by the shareholders of the Group. The Trustees
elect the officers of the Group to supervise actively its day-to-day operations.
-12-
<PAGE> 55
The names of the Trustees and officers of the Group, their addresses,
ages and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Name, Address and Age Position(s) Held Principal Occupation
With the Group During Past 5 Years
<S> <C> <C>
Walter B. Grimm* President and Trustee From June 1992 to present,
3435 Stelzer Road employee of BISYS Fund Services.
Columbus, Ohio 43219
Age: 54
Maurice G. Stark Trustee Retired. Until December 31, 1994,
505 King Avenue Vice President-Finance and
Columbus, Ohio 43201 Treasurer, Battelle Memorial
Age: 64 Institute (scientific research and
development service corporation).
Michael M. Van Buskirk Trustee From June 1991 to present,
37 West Broad Street Executive Vice President of The
Suite 1001 Ohio Bankers' Association (trade
Columbus, Ohio 43215-4162 association); from September 1987
Age: 52 to June 1991, Vice
President-Communications,
TRW Information Systems
Group (electronic and space
engineering).
John H. Ferring IV Trustee From 1979 to present, President
105 Bolte Lane and Owner of Plaze, Incorporated,
St. Clair, Missouri St. Clair, Missouri
Age: 47
R. Jeffrey Young* Chairman and Trustee From 1993 to present, employee
3435 Stelzer Road of BISYS Fund Services.
Columbus, Ohio 43219
Age: 35
Sue A. Walters Vice President From July 1990 to present,
3435 Stelzer Road employee of BISYS Fund Services
Columbus, Ohio 43219
Age: 49
Jennifer R. Brooks Vice President From October 1988 to present,
3435 Stelzer Road employee of BISYS Fund Services
Columbus, Ohio 43219
Age: 34
</TABLE>
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<PAGE> 56
<TABLE>
<CAPTION>
Name, Address and Age Position(s) Held Principal Occupation
With the Group During Past 5 Years
<S> <C> <C>
Nadeem Yousaf Treasurer From August 1999 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from March 1997 to June 1999,
Age: 31 employee of Investors Bank and Trust;
from October 1994 to March 1997, employee
of PricewaterhouseCoopers LLP.
George L. Stevens Secretary From September 1996 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from September 1995 to September
Age: 49 1996, Independent Consultant; from
September 1989 to September 1995,
Senior Vice President, AmSouth Bank, N.A.
Alaina V. Metz Assistant Secretary From June 1995 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 from May 1989 to June 1995,
Age: 32 employee of Alliance Capital
Management.
</TABLE>
-----------------
* Mr. Grimm and Mr. Young are each considered to be an "interested person" of
the Group as defined in the 1940 Act.
As of the date of this Statement of Additional Information, the Group's
officers and Trustees, as a group, own less than 1% of the Fund's outstanding
Shares.
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. BISYS Fund Services receives
fees from the Fund for acting as Administrator. BISYS Fund Services Ohio, Inc.
receives fees from the Fund for acting as transfer agent and for providing
certain fund accounting services. Messrs. Young, Yousaf, Stevens and Grimm, and
Ms. Metz, Ms. Walters and Ms. Brooks are employees of BISYS Fund Services.
-14-
<PAGE> 57
Trustees of the Group not affiliated with BISYS Fund Services receive
from the Group an annual fee of $1,000, plus $2,250 for each regular meeting of
the Board of Trustees attended and $1,000 for each special meeting of the Board
attended in person and $500 for other special meetings of the Board attended by
telephone, and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with BISYS Fund
Services do not receive compensation from the Group.
For the fiscal year ended March 31, 2000, the Trustees received the
following compensation from the Group and from certain other investment
companies (if applicable) that have the same investment adviser as the Fund or
an investment adviser that is an affiliated person of the Group's investment
adviser:
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Est. Annual From Registrant and
Compensation from As Part of Fund Benefits Upon Fund Complex Paid to
Name of Trustee the Fund Expenses Retirement Trustees
--------------- ----------------- --------------- ------------- --------------------
<S> <C> <C> <C> <C>
Walter B. Grimm $ 0 $ 0 $ 0 $ 0
Maurice G. Stark $703.48 $ 0 $ 0 $10,000
Michael Van Buskirk $703.48 $ 0 $ 0 $10,000
John H. Ferring IV $703.48 $ 0 $ 0 $10,000
R. Jeffrey Young $ 0 $ 0 $ 0 $ 0
</TABLE>
Investment Adviser and Sub-Adviser
Investment advisory services are provided by Shelby County Trust Bank,
Shelbyville, Kentucky 40066 (the "Adviser"), pursuant to an Investment Advisory
Agreement dated as of June 27, 1994 (the "Investment Advisory Agreement"). SMC
Capital Inc., Louisville, Kentucky 40207 (the "Sub-Adviser"), provides
sub-investment advisory services to the Fund pursuant to a Sub-Advisory
Agreement dated as of June 27, 1994 (the "Sub-Advisory Agreement"). (The
Investment Advisory Agreement and the Sub-Advisory Agreement are referred to
collectively as the "Advisory Agreements").
Under the Investment Advisory Agreement, the Adviser has agreed to
provide investment advisory services as described in the Prospectus of the Fund.
For the services provided pursuant to the Investment Advisory Agreement, the
Fund pays the Adviser a fee computed daily and paid monthly, at an annual rate,
calculated as one percent (1.00%) of the average daily net assets of the Fund.
Under the Sub-Advisory Agreement, the Sub-Adviser has agreed to provide
sub-investment advisory services as described in the Prospectus of the Fund. The
Adviser is responsible at all times for supervising the activities of the
Sub-Adviser. For the services provided pursuant to the Sub-Advisory Agreement,
the Adviser pays the Sub-Adviser a fee equal to 0.40% of the Fund's first $30
million in net assets, 0.50% of the next $10 million of the Fund's net assets,
and 0.60% of the Fund's net assets in excess of $40 million.
-15-
<PAGE> 58
The total investment advisory fees paid to the Adviser for the fiscal
year ended March 31, 1998 was $ 1,026,519; the total investment advisory fees
paid to the Adviser for the fiscal year ended March 31, 1999 was $492,580 and
the total investment advisory fees paid to the Adviser for the fiscal year
ended March 31, 2000 was $454,916. The total sub-advisory fees paid to the
Sub-Adviser for the fiscal year ended March 31, 1998 was $541,931; the total
sub-advisory fees paid to the Sub-Adviser for the fiscal year ended March
31,1999 was $224,661 and the total sub-advisory fees paid to the Sub-Adviser
for the fiscal year ended March 31, 2000 was $203,322.
Unless sooner terminated, the Advisory Agreements will continue in
effect until February 28, 2001 and from year to year thereafter, if such
continuance is approved at least annually by the Group's Board of Trustees or by
vote of a majority of the outstanding Shares of the Fund (as defined under
"GENERAL INFORMATION Miscellaneous" in the Fund's Prospectus), and a majority of
the Trustees who are not parties to the Advisory Agreements or interested
persons (as defined in the 1940 Act) of any party to the Advisory Agreements by
votes cast in person at a meeting called for such purpose. The Advisory
Agreements are terminable at any time on 60 days' written notice without penalty
by the Trustees, by vote of a majority of the outstanding Shares of the Fund, or
by the Adviser or Sub-Adviser. The Advisory Agreements also terminate
automatically in the event of any assignment, as defined in the 1940 Act.
The Advisory Agreements provide that neither the Adviser nor the
Sub-Adviser shall be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with their performance under the
Advisory Agreements, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith, or gross negligence on the part of either
party in the performance of their duties, or from reckless disregard of their
duties and obligations thereunder.
Code of Ethics
The Group, the Adviser, the Sub-Adviser and the Distributor have each adopted a
Code of Ethics, pursuant to Rule 17j-1 under the Investment Company Act of 1940,
applicable to securities trading practices of its personnel. Each Code permits
covered personnel to trade in securities in which a Fund may invest, subject to
certain restrictions and reporting requirements.
Portfolio Transactions
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with the Fund's investment objective, policies and restrictions,
which securities are to be purchased and sold by the Fund, and which brokers are
to be eligible to execute the Fund's portfolio transactions. Purchases and sales
of portfolio securities with respect to the Fund usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of portfolio securities generally include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers may include the spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. Transactions in the over-the-counter market are generally principal
transactions with dealers. With respect to the over-the-counter market, the
Adviser, where possible, will deal directly with dealers who make a market in
the securities involved except in those circumstances where better price and
execution are available elsewhere.
The Group, on behalf of the Fund, will not execute portfolio
transactions through, acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with
Shelby County Trust Bank, SMC Capital Inc., BISYS Fund
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Services, or their affiliates, and will not give preference to Shelby County
Trust Bank's correspondents with respect to such transactions, securities,
savings deposits, repurchase agreements, and reverse repurchase agreements.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
The Adviser may cause a Fund to pay a broker which provides brokerage and
research services to the Adviser a commission for effecting a securities
transaction or a price for certain securities in excess of the amount another
broker might have charged. Such higher commissions or prices may not be paid
unless the Adviser determined in good faith that the amount paid is reasonable
in relation to the services received in terms of the particular transaction or
the Adviser's overall responsibilities to the Trust and any other of the
Adviser's clients.
Information so received is in addition to and not in lieu of services
required to be performed by the Adviser and does not reduce the advisory fees
payable to the Adviser by the Fund. Such information may be useful to the
Adviser in serving both the Fund and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to the Adviser in carrying out its obligations to the Fund.
While the Adviser generally seeks competitive commissions, the Group
may not necessarily pay the lowest commission available on each brokerage
transaction, for reasons discussed above.
Investment decisions for the Fund are made independently from those for
any other investment company or account managed by the Adviser. Any such other
investment company or account may also invest in the same securities as the
Group on behalf of the Fund. When a purchase or sale of the same security is
made at substantially the same time on behalf of the Fund and another investment
company or account, the transaction will be averaged as to price, and available
investments will be allocated as to amount in a manner which the Adviser
believes to be equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained by the
Fund. To the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for the
other investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement, in making investment
recommendations for the Fund, the Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of the Adviser, its parent or its subsidiaries or
affiliates and, in dealing with its customers, the Adviser, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Fund.
For the fiscal
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year ended March 31, 1998, the Fund paid brokerage commissions of $263,223,
none of which commissions were paid to any affiliate of the Fund or the Adviser.
For the fiscal year ended March 31, 1999, the Fund paid brokerage commissions of
$265,806, none of which commissions were paid to any affiliate of the Fund or
the Adviser. For the fiscal year ended March 31, 2000, the Fund paid brokerage
commissions of $145,030, none of which commissions were paid to any affiliate of
the Fund or Adviser.
Administrator
BISYS Fund Services serves as administrator (the "Administrator") to
the Fund pursuant to a Management and Administration Agreement dated June 27,
1994 (the "Administration Agreement"). The Administrator assists in supervising
all operations of the Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, the Custodian under the Custodian Agreement and
by BISYS Fund Services Ohio, Inc. under the Transfer Agency Agreement and the
Fund Accounting Agreement). The Administrator is a broker-dealer registered with
the Commission, and is a member of the National Association of Securities
Dealers, Inc.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Fund and file all of
the Fund's federal and state tax returns and required tax filings other than
those required to be made by the Fund's Custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Group's counsel; assist to the extent requested by the Fund with the Fund's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement; compile data for, prepare and file timely Notices to the
Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain
the financial accounts
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and records of the Fund, including calculation of daily expense accruals; and
generally assist in all aspects of the Fund's operations other than those
performed by the Adviser under the Investment Advisory Agreement, by the
Custodian under the Custodian Agreement and by BISYS Fund Services Ohio, Inc.
under the Transfer Agency Agreement and the Fund Accounting Agreement. Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
The Administrator receives a fee from the Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
computed daily and paid monthly, calculated at an annual rate of 0.20% of the
Fund's first $300 million in net assets, 0.125% of the next $400 million of net
assets, 0.08% of the next $300 million of net assets and 0.05% of the Fund's net
assets in excess of $1 billion. The Administrator may periodically waive all or
a portion of its fee with respect to the Fund in order to increase the net
income of the Fund available for distribution as dividends.
For the fiscal year ended March 31, 1998, the Administrator earned
administrative fees of $205,305 and the Administrator waived administrative fees
in the amount of $51,327. For the fiscal year ended March 31, 1999, the
Administrator earned administrative fees of $98,517 and the Administrator waived
administrative fees in the amount of $24,629. For the fiscal year ended March
31, 2000, the Administrator earned administrative fees of $90,984 and the
Administrator waived administrative fees in the amount of $22,746.
The Administration Agreement shall be renewed automatically for
successive three-year terms, unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days' prior to the expiration
of the then-current term. The Administration Agreement is terminable with
respect to the Fund through a failure by either party to the Administration
Agreement to renew at the end of a three-year term, upon mutual agreement of the
parties, or for cause (as defined in the Administration Agreement) by the party
alleging cause, on not less than 60 days' notice by the Group's Board of
Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
the Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
Distributor
BISYS Fund Services serves as distributor to the Fund pursuant to the
Distribution Agreement dated October 1, 1993, as amended (the "Distribution
Agreement"). Unless otherwise terminated, the Distribution Agreement will
continue in effect from year to year if its continuance is approved at least
annually (i) by the Group's Board of Trustees or by the vote of a majority of
the outstanding Shares of the Fund and (ii) by the vote of a majority of the
Trustees of the Group who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
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In its capacity as Distributor, BISYS Fund Services solicits orders for
the sale of Shares, advertises and pays the costs of advertising, office space
and the personnel involved in such activities. The Distributor receives no
compensation under the Distribution Agreement with the Group.
The Group has adopted a Service and Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act under which the Class A and Class B
Shares of the Fund are authorized to pay the Distributor for payments it makes
to banks, other institutions and broker-dealers, and for expenses the
Distributor and any of its affiliates or subsidiaries incur (with all of the
foregoing organizations being referred to as "Service Organizations") for
providing administration, distribution or shareholder service assistance to the
Fund. Payments to such Service Organizations may be made pursuant to agreements
entered into with BISYS Fund Services. The Plan authorizes the Fund to make
payments to the Distributor in an amount not to exceed, on an annual basis, .25%
of the average daily net assets of Class A Shares and up to 1.00% of the average
daily net assets of the Class B Shares. As required by Rule 12b-1, the Plan was
approved by the sole Shareholder of the Fund and by the Board of Trustees,
including a majority of the Trustees who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan (the "Independent Trustees"). The Plan may be terminated by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Shares of the Fund. The Trustees review quarterly a written report
of such costs and the purposes for which such costs have been incurred. The Plan
may be amended by vote of the Trustees including a majority of the Independent
Trustees, cast in person at a meeting called for that purpose. However, any
change in the Plan that would materially increase the distribution cost to the
Fund requires Shareholder approval. For so long as the Plan is in effect,
selection and nomination of the Independent Trustees shall be committed to the
discretion of such disinterested persons. All agreements with any person
relating to the implementation of the Plan may be terminated at any time on 60
days' written notice without payment of any penalty, by vote of a majority of
the Independent Trustees or by vote of a majority of the outstanding Shares of
the Fund. The Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by the vote of a majority of
the entire Board of Trustees cast in person at a meeting called for that
purpose. The Board of Trustees has a duty to request and evaluate such
information as may be reasonably necessary for it to make an informed
determination of whether the Plan should be implemented or continued. In
addition the Trustees in approving the Plan must determine that there is a
reasonable likelihood that the Plan will benefit the Fund and its Shareholders.
The Board of Trustees of the Group believes that the Plan is in the
best interests the Fund since it encourages Fund growth. As the Fund grows in
size, certain expenses, and therefore total expenses per Share, may be reduced
and overall performance per Share may be improved.
For the fiscal year ended March 31, 2000, the Distributor received
distribution fees with respect to Class A Shares of the Fund in the amount of
$16. Because Class B Shares of the Fund were not offered for sale during the
fiscal year, no distribution fees were paid with respect to the Class B Shares.
Custodian
Fifth Third Bank, Cincinnati, Ohio, serves as custodian (the
"Custodian") to the Fund pursuant to the Custodian Agreement dated as of June
27, 1994 between the Group and the Custodian (the "Custodian Agreement"). The
Custodian's responsibilities include safeguarding and controlling the Fund's
cash and securities, handling the receipt and delivery of securities, and
collecting interest on the Fund's investments. In consideration of such
services, the Fund pays the Custodian an annual fee plus fixed fees charged for
certain portfolio transactions and out-of-pocket expenses.
Transfer Agency and Fund Accounting Services
BISYS Fund Services Ohio, Inc. serves as transfer agent and dividend
disbursing agent ("BISYS Fund Services Ohio" or the "Transfer Agent") for the
Fund pursuant to the Transfer Agency Agreement dated June 27, 1994. Pursuant to
such Agreement, the Transfer Agent, among other things, performs the following
services in connection with the Fund's Shareholders of record: maintenance of
shareholder records for the Fund's Shareholders of record; processing
shareholder purchase and redemption orders; processing transfers and exchanges
of Shares of the Fund on the shareholder files and records; processing dividend
payments and reinvestments; and assistance in the mailing of shareholder reports
and proxy solicitation materials. For such services the Transfer Agent receives
a fee based on the number of shareholders of record.
In addition, BISYS Fund Services Ohio provides certain fund accounting
services to the Fund pursuant to a Fund Accounting Agreement dated June 27,
1994. BISYS Fund Services Ohio receives a fee from the Fund for such services
equal to a fee computed daily and paid periodically at an annual rate of three
one-hundredths of one percent (.03%) of the Fund's average daily net assets,
subject to a minimum annual fee of $30,000. Under such Agreement, BISYS Fund
Services Ohio maintains the accounting books and records for the Fund, including
journals containing an itemized daily record of all purchases and sales of
portfolio securities, all receipts and disbursements of cash and all other
debits and credits, general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, including interest
accrued and interest received, and other required separate ledger accounts;
maintains a monthly trial balance of all ledger accounts; performs certain
accounting services for the Fund, including calculation of the net asset value
per Share, calculation of the dividend and capital gain distributions, if any,
and of yield, reconciliation of cash movements with the Custodian, affirmation
to the Custodian of all portfolio trades and cash settlements, and verification
and reconciliation with the Custodian of all daily trade activity; provides
certain reports; obtains dealer quotations, prices from a pricing service or
matrix prices on all portfolio securities in order to mark the portfolio to the
market; and prepares an interim balance sheet, statement of income and expense,
and statement of changes in net assets for the Fund.
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Independent Auditors
Arthur Andersen LLP has been selected as auditors for the Fund for the
fiscal year ending March 31, 2001. Arthur Andersen LLP performs an annual audit
of the Fund's financial statements and provides other services related to
filings with respect to securities regulations. Reports of their activities are
provided to the Fund's Board of Trustees.
Legal Counsel
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
is counsel to the Group.
ADDITIONAL INFORMATION
Description of Shares
The Group is a Massachusetts business trust, organized on January 8,
1992. The Group's Declaration of Trust is on file with the Secretary of State of
Massachusetts. The Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of shares, which are shares of beneficial interest,
with a par value of $0.01 per share. The Group currently has several separate
series of shares, one of which represents interests in the Fund. The Group's
Declaration of Trust authorizes the Board of Trustees to divide or redivide any
unissued shares of the Group into one or more additional series by setting or
changing in any one or more respects their respective preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Fund's Prospectus and
this Statement of Additional Information, the shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a fund are entitled to receive the assets available for
distribution belonging to that fund, and a proportionate distribution, based
upon the relative asset values of the respective funds, of any general assets
not belonging to any particular fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding shares of such fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by shareholders of the Group voting without regard to
series.
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Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Group.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Group for acts or obligations of the Group, which
are binding only on the assets and property of the Group, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Group or the Trustees. The Declaration of Trust provides for
indemnification out of Group property for all loss and expense of any
shareholder held personally liable for the obligations of the Group. The risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Group itself would be unable to meet its
obligations, and thus should be considered remote.
Vote of a Majority of the Outstanding Shares
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of the Fund means the
affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a)
67% or more of the votes of Shareholders of the Fund present at a meeting at
which the holders of more than 50% of the votes attributable to Shareholders of
record of the Fund are represented in person or by proxy, or (b) the holders of
more than 50% of the outstanding votes of Shareholders of the Fund.
Additional Tax Information
Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Fund and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to Shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
TAXATION OF THE FUND. The Fund intends to qualify annually and to elect
to be treated as a regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S.
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Government securities or the securities of other regulated investment companies)
of any one issuer or of any two or more issuers that the Fund controls and that
are determined to be engaged in the same business or similar or related
business; and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) each taxable
year.
As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to Shareholders. The Fund intends
to distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, the Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses, as prescribed by the Code) for the one-year period ending on October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. A distribution will be
treated as paid on December 31 of the current calendar year if it is declared by
the Fund in October, November or December with a record date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taxable to Shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, the Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company
taxable income will be taxable to a U.S. Shareholder as ordinary income. A
portion of the Fund's income may consist of dividends paid by U.S. corporations
and, accordingly, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the Shareholder has held the Fund's
Shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the net asset value
of a Share of the Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. federal tax status of distributions, and Shareholders
receiving distributions in the form of additional Shares will receive a report
as to the net asset value of those Shares.
OPTIONS AND HEDGING TRANSACTIONS. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by the Fund for selling a
put or call option is not included in income at the time of receipt. If the
option expires, the premium is short-term capital gain to the Fund. If the Fund
enters into a closing transaction, the difference between the amount paid to
close out its position and the premium received is short-term capital gain or
loss. If a call option written by the Fund is exercised, thereby requiring the
Fund to sell the underlying security, the premium will increase the amount
realized upon the sale of such security and any resulting gain or loss will be a
capital gain or loss, and will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call option that is
purchased by the Fund,
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if the option is sold, any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term, depending upon the holding period of
the option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
Certain options in which the Fund may invest may be "section 1256
contracts". Gains or losses on section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses ("60/40"). Also,
section 1256 contracts held by the Fund at the end of each taxable year (and,
generally, for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
Shareholders, and which, will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
If the Fund invests in stock of certain foreign investment companies
("PFICs"), the Fund may be subject to U.S. federal income taxation on a portion
of any "excess distribution" with respect to, or gain from the disposition of,
such stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
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and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its Shareholders.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund would be required to include in its gross income its
share of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. An alternative election would involve marking to
market the Fund's PFIC shares at the end of each taxable year, with the result
that unrealized gains would be treated as though they were realized and reported
as ordinary income. Any mark-to-market losses and any loss from an actual
disposition of PFIC shares would be deductible as ordinary losses to the extent
of any net mark-to-market gains included in income in prior years.
SALE OF SHARES. Upon the sale or other disposition of Shares of the
Fund, or upon receipt of a distribution in complete liquidation of the Fund, a
Shareholder generally will realize a capital gain or loss which will be
long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including Shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the Shares. In
such a case, the basis of the Shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a Shareholder on a disposition of Fund
Shares held by the Shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the Shareholder with respect to such Shares. Furthermore, a loss
realized by a Shareholder on the redemption, sale or exchange of Shares of the
Fund with respect to which exempt-interest dividends have been paid will, to the
extent of such exempt-interest dividends, be disallowed if such Shares have been
held by the Shareholder for less than six months.
FOREIGN WITHHOLDING TAXES. Income received by the Fund from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
Shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Corporate
Shareholders and certain other Shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the Shareholder's U.S. federal
income tax liability.
Calculation of Performance Data
YIELD CALCULATIONS. As summarized in the Prospectus of the Fund under
the heading "PERFORMANCE INFORMATION", yields of the Fund will be computed by
dividing the net investment income per share (as described below) earned by the
Fund during a 30-day (or one month) period by the maximum offering price per
share on the last day of the period and annualizing the result on a semi-annual
basis by adding one to the quotient, raising the sum to the
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power of six, subtracting one from the result and then doubling the difference.
The Fund's net investment income per share earned during the period is based on
the average daily number of Shares outstanding during the period entitled to
receive dividends and includes dividends and interest earned during the period
minus expenses accrued for the period, net of reimbursements. This calculation
can be expressed as follows:
Yield = 2 [(a - b + 1) to the sixth power -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding during the period
that were entitled to receive dividends.
d = maximum offering price per Share on the last day of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities, if
any, held by the Fund is recognized by accruing 1/360 of the stated dividend
rate of the security each day that the security is in the Fund. Interest earned
on any debt obligations held by the Fund is calculated by computing the yield to
maturity (given reasonable assumptions) of each obligation held by the Fund
based on the market value of the obligation (including actual accrued interest)
at the close of business on the last Business Day of each month, or, with
respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Fund. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of a non-mortgage-related obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
During any given 30-day period, the Adviser or the Administrator may
voluntarily waive all or a portion of their fees with respect to the Fund. Such
waiver would cause the yield of the Fund to be higher than it would otherwise be
in the absence of such a waiver.
TOTAL RETURN CALCULATIONS. As summarized in the Prospectus of the Fund
under the heading "PERFORMANCE INFORMATION", average annual total return is a
measure of the change in value of an investment in the Fund over the period
covered, which assumes any dividends or capital gains distributions are
reinvested in the Fund immediately
-26-
<PAGE> 69
rather than paid to the investor in cash. The Fund computes its average annual
total return by determining the average annual compounded rates of return during
specified periods that equate the initial amount invested to the ending
redeemable value of such investment. This is done by dividing the ending
redeemable value of a hypothetical $1,000 initial payment by $1,000 and raising
the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
Average Annual
Total Return = [ ( ERV )1/n - 1]
-----
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
The Fund computes its aggregate total return by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
Aggregate Total
Return = [ ( ERV ) - 1]
-----
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
With respect to the Class Y Shares, for the fiscal year ended March 31,
2000, the total return for Class Y Shares was 82.50%. Based upon the period
beginning with the Commingled Funds' commencement of operations (January 1,
1981) through March 31, 2000, the aggregate total return for the Class Y Shares
was 2,429% and the average annual total return for the Class Y Shares was
18.28%.
With respect to the Class A Shares, for the period from October 28,
1999 (commencement of operations of the Class A Shares) through March 31, 2000,
the total return for the Class A Shares was 66.08% assuming the imposition of
the maximum sales charge of 4.75% and was 74.29% without the imposition of any
sales charge.
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<PAGE> 70
Performance Comparisons
Investors may judge the performance of the Fund by comparing or
referencing it to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies. Such comparisons
may be made by referring to market indices such as those prepared by Dow Jones &
Co., Inc. and Standard & Poor's Corporation. Such comparisons may also be made
by referring to data prepared by Lipper Analytical Services, Inc. (a widely
recognized independent service which monitors the performance of mutual funds).
Comparisons may also be made to indices or data published in national financial
publications such as Ibottson Associates, Inc., Morningstar, CDA/Wiesenberger,
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Fortune, Institutional Investor, U.S.A. Today
and local newspapers. In addition to performance information, general
information about the Fund that appears in a publication such as those mentioned
above may be included in advertisements and in reports to Shareholders.
From time to time, the Fund may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to Shareholders. The Fund may also include calculations,
such as hypothetical compounding examples, which describe hypothetical
investment results in such communications. Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of the Fund.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Fund may
include descriptions of the investment advisers including, but not limited to,
(i) descriptions of the advisers' operations, (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings related to the
advisers' operations.
From time to time, the Fund may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including but not
limited to insured bank products, annuities, qualified retirement plans and
individual stocks and bonds) which may or may not include the Fund; (7)
comparisons of investment products (including the Fund) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations.
Current yields and total return figures will fluctuate from time to
time and are not necessarily representative of future results. Accordingly, the
Fund's yield or other performance may not provide for comparison with bank
deposits or other investments that pay a fixed return for a stated period of
time. Yield and total return are functions of the Fund's quality, composition
and maturity, as well as expenses allocated to the Fund.
-28-
<PAGE> 71
Principal Shareholders
As of July 10, 2000, no persons or entities owned beneficially or of
record 5% or more of the Fund's outstanding shares, except: (i) with respect to
Class Y Shares - Shelby County Trust Bank, 4350 Brownsboro Road, Suite 310,
Louisville, Kentucky 40207, which owned of record 95.4% of the Fund's Class Y
shares and (ii) with respect to Class A Shares, Link & Co., P.O. Box 630074,
Cincinnati, Ohio 45263, which owned of record 79.83% of the Fund's Class A
Shares.
Miscellaneous
Shareholders will receive unaudited Semi-Annual Reports and Annual
Reports audited by independent public accountants describing the investment
operations of the Fund. Each of these Reports, when available for a particular
fiscal year end or half-year end, is incorporated herein by reference. The Fund
may include information in its Annual Reports and Semi-Annual Reports to
Shareholders that (i) describes general economic trends, (ii) describes general
trends within the financial services industry or the mutual fund industry, (iii)
describes past or anticipated portfolio holdings for a fund within the Group or
(iv) describes investment management strategies for such funds. Such information
is provided to inform Shareholders of the activities of the Fund for the most
recent fiscal year or half-year and to provide the views of the advisers and/or
Group officers regarding expected trends and strategies.
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Shareholders owning not less than 10% of the outstanding Shares of the Group
entitled to vote may cause the Trustees to call a special meeting, including for
the purpose of considering the removal of one or more Trustees. Any Trustee may
be removed at any meeting of Shareholders by vote of two-thirds of the Group's
outstanding shares. The Declaration of Trust provides that the Trustees will
assist shareholder communications to the extent required by Section 16(c) of the
1940 Act in the event that a shareholder request to hold a special meeting is
made.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements of the Fund appearing in the Fund's Annual
Report to Shareholders for the year ended March 31, 2000 have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report thereon. Such financial statements are incorporated herein by reference.
-29-
<PAGE> 72
PART C
-----------
OTHER INFORMATION
-----------------
ITEM 23. EXHIBITS
(a)(1) Declaration of Trust(1)
(a)(2) Establishment and Designation of Series of Shares
(The Shelby Fund)(3)
(b) By-Laws(2)
(c) Certificates for Shares are not issued. Articles IV,
V, VI and VII of the Declaration of Trust, previously
filed as Exhibit (a) hereto, define rights of holders
of Shares
(d)(1) Investment Advisory Agreement between Registrant and
Shelby County Trust Bank(3)
(d)(2) Sub-Advisory Agreement between Registrant and SMC
Capital Inc.(3)
(e) Distribution Agreement between Registrant and BISYS
Fund Services(3)
(f) Not Applicable
(g) Custody Agreement between Registrant and The Fifth
Third Bank(3)
(h)(1) Management and Administration Agreement between the
Registrant and BISYS Fund Services(3)
(h)(2) Fund Accounting Agreement between the Registrant and
BISYS Fund Services Ohio, Inc.(3)
(h)(3) Transfer Agency Agreement between the Registrant and
BISYS Fund Services Ohio, Inc.(3)
(i) Opinion and Consent of Counsel
(j) Consent of Independent Accountants
(k) Not Applicable
C-1
<PAGE> 73
(l) Not Applicable
(m) Service and Distribution Plan(4)
(n) Not Applicable
(o) Plan Pursuant to Rule 18f-3(4)
(p)(1) Code of Ethics of Registrant(5)
(p)(2) Code of Ethics of BISYS Fund Services(5)
(p)(3) Code of Ethics of Shelby County Trust Bank
(p)(4) Code of Ethics of SMC Capital, Inc.
__________________
1. Filed with initial Registration Statement on January 8, 1992.
2. Filed with Post-Effective Amendment No. 2 on September 4, 1992.
3. Filed with Post-Effective Amendment No. 9 on April 18, 1994.
4. Filed with Post-Effective Amendment No. 40 on September 3, 1998.
5. Filed with Post-Effective Amendment No. 67 on April 14, 2000.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Declaration of Trust states
as follows:
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained
in paragraph
(b) below:
(i) every person who is, or has been, a Trustee
or officer of the Trust shall be indemnified
by the Trust to the fullest extent permitted
by law against all liability and against all
expenses reasonably incurred or paid by him
in connection with any claim, action, suit
or proceeding in which he becomes involved
as a party or otherwise by virtue of his
being or having been a Trustee or officer
and against amounts paid or incurred by him
in the settlement thereof; and (ii) the
words "claim," "action," "suit," or
"proceeding" shall apply to all claims,
actions, suits or proceedings (civil,
criminal, administrative or other, including
appeals), actual or threatened; and the
words "liability" and "expenses" shall
include, without limitation, attorneys fees,
costs, judgments, amounts paid in
settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be
provided hereunder to a Trustee or
officer:
(i) against any liability to the
Trust, a Series thereof, or the
Shareholders by reason of a final
adjudication by a court or other
body before which a proceeding was
brought
C-2
<PAGE> 74
that he engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in
good faith in the reasonable belief that his action
was in the best interest of the Trust; or
(iii) in the event of a settlement or other
disposition not involving a final adjudication as
provided in paragraph (b)(i) or (b)(ii) resulting in
a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did
not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or (B)
based upon a review of readily available
facts (as opposed to a full trial-type
inquiry) by (1) vote of a majority of the
Disinterested Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in office acts
on the matter) or (2) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased to
be such Trustee or officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such person. Nothing contained
herein shall affect any rights to indemnification to which personnel of
the Trust other than Trustees and officers may be entitled by contract
or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a)
of this Section 4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust
shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter
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<PAGE> 75
(provided that a majority of the Disinterested Trustees acts
on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily
available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has
been exempted from being an Interested Person by any rule, regulation
or order of the Commission), or (ii) involved in the claim, action,
suit or proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act, and therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers
or controlling persons of the Registrant in connection with
the successful defense of any act, suit or proceeding) is
asserted by such trustees, officers or controlling persons in
connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND
THEIR OFFICERS AND DIRECTORS
(a) Shelby County Trust Bank is the investment adviser for The
Shelby Fund. Set forth below are the senior officers and
directors of Shelby County Trust Bank and their principal
business and other connections. The Business Address of the
officers and directors is 422 Main Street, Shelbyville,
Kentucky 40066.
<TABLE>
<CAPTION>
Position with
Name the Adviser Principal Occupation
---- ----------- --------------------
<S> <C> <C>
Perry Day Chairman and Chief Executive Position with Shelby County Trust Bank
Officer
Bobby Hudson Vice Chair and Chief Operating Position with Shelby County Trust Bank
Officer
Patrick Sullivan President Position with Shelby County Trust Bank
Robert Logan Director Retired from Manufacturing
Frank Goodwin Director Retired from Manufacturing
Rebecca Irvine Director Homemaker
Darrell Wells Director Chief Executive Officer, SMC
Capital, Inc.; General Partner,
Security Management Company
Ben Matthews Director Attorney with Matthews, Myles and Smith
Robert Pearce Director Auto Sales; Pearce Motor Company
Frank Kiley Director Chief Financial Officer, SMC
Capital, Inc.; Principal, Security
Management Company
W.A. Smith Director Real Estate Agent with A.W. Smith
Realty
John Brenzel Director Consultant
Ann Wells Director Private Investor
Wayne Wells, Jr. Director Restaurant Owner, Nautical
Restaurants, Inc.
B.A. Thomas, Jr. Director Agricultural Interests
Frank P. Hargadon, V Director Insurance Agent
Betty Baird Kregor Director Golf Professional
</TABLE>
SMC Capital, Inc. serves as the sub-investment adviser for The
Shelby Fund. The business and other connections of SMC
Capital, Inc. are set forth in the Uniform Application for
Investment Adviser Registration ("Form ADV") of SMC Capital,
Inc. as currently filed with the SEC which is incorporated by
reference herein.
ITEM 27. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund
Services") acts as distributor for Registrant. BISYS
Fund Services also distributes the securities of
Alpine Equity Trust, American Independence Funds
Trust, American Performance Funds, the AmSouth Mutual
Funds, The BB&T Mutual Funds Group, The Eureka Funds,
Governor Funds, Fifth Third Funds, Gradison Custodian
Trust, Gradison Growth Trust, Gradison-McDonald Cash
Reserves Trust, Gradison-McDonald Municipal Custodian
Trust, Hirtle Callaghan Trust, HSBC Funds Trust, HSBC
Mutual Funds Trust, The Infinity Mutual Funds, Inc.,
Magna Funds, MMA Praxis Mutual Funds, Mercantile
Mutual Funds, Inc., Metamarkets.com, Meyers
Investment Trust, M.S.D.&T Funds, Pacific Capital
Funds, Puget Sound Alternative Investment Series
Trust, The Republic Funds Trust, The Republic
Advisors Funds
C-4
<PAGE> 76
C-5
<PAGE> 77
Trust, Sefton Funds Trust, SSgA International Liquidity Fund,
Summit Investment Trust, Variable Insurance Funds, The Victory
Portfolios, The Victory Variable Insurance Funds and The
Vintage Mutual Funds, Inc.
(b) Partners of BISYS Fund Services, as of July 31, 2000,
were as follows:
<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with Underwriter Positions and Offices with Registrant
Address
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
Other BISYS Distributors
------------------------
In addition to the following officers of the BISYS related distributors listed
below, each distributor has additional officers listed to the right ( business
address for each person and distributor unless noted otherwise is 3435 Stelzer
Road, Columbus, OH 43219 and unless noted otherwise each person holds no
position with the Fund):
Lynn Mangum Director
Dennis Sheehan Director
Kevin Dell Vice President/Secretary
William Tomko Sr Vice President
Robert Tuch Assistant Secretary
*Barr Rosenberg Funds Distributor, Inc. Irimga McKay- President
Barr Rosenberg Funds Greg Maddox -Vice President(1)
BNY Hamilton Distributors, Inc. William J. Tomko- President(2)
BNY Hamilton Funds, Inc. Richard Baxt -Sr Vice President(3)
*Centura Funds Distributor, Inc. Walter B. Grimm- President
Centura Funds William J. Tomko- Sr Vice President
CFD Fund Distributors, Inc. Richard Baxt- President
Chase Funds
Concord Financial Group, Inc. Walter B. Grimm- President
ProFunds-
*Evergreen Distributor, Inc. D'Ray Moore- President
Evergreen Funds
*Performance Funds Distributor, Inc. Walter B. Grimm-President(4)
Performance Funds William J. Tomko- Sr Vice President
The One Group Services Company Mark Redman- President(5)
The One Group of Funds William Tomko-Sr Vice President (2)
Vista Funds Distributors, Inc. Richard Baxt- President
Chase Vista Funds Lee Schultheis-Sr Vice President
William J. Tomko- Sr Vice President
Kent Funds Distributors, Inc.
Mentor Distributors, LLC D'Ray Moore, President
*IBJ Funds Distributor, Inc. Walter B. Grimm, SVP
* address is 90 Park Avenue, NY, NY
(1) Serves as Assistant Treasurer to Centura Funds
(2) Serves as President to BNY Hamilton Funds and Treasurer to One Group
of Funds
(3) Serves as Vice President to BNY Hamilton Funds (4) Serves as President of
Performance Funds (5) Serves as president to One Group of Funds
Non-BISYS Distributors
----------------------
(see Part C of post-effective amendments for indicated funds for directors and
officers of distributors listed below.)
Glickenhaus & Company
The Empire Builder Tax-Free Bond Fund
Integrity Investments
Valiant Funds
Shay Financial Services, Inc.
MSB Fund. Inc.
Asset Management Fund, Inc.
Institutional Investors Capital Appreciation Fund, Inc.
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(a) In connection with The Shelby Fund, the accounts, books, and
other documents required to be maintained by the Registrant
pursuant to Section 31(a) of the Investment Company Act of
1940 and rules promulgated thereunder are in the possession of
Shelby County Trust Bank, 422 Main Street, Shelbyville,
Kentucky 40066 (records relating to its function as adviser
for The Shelby Fund), SMC Capital, Inc., 4350 Brownsboro Road,
Louisville, Kentucky 40207 (relating to its function as
sub-adviser for The Shelby Fund), BISYS Fund Services, 3435
Stelzer Road, Columbus, Ohio 43219 (records relating to its
functions as general manager, administrator and distributor),
and BISYS Fund Services Ohio, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to its functions as
transfer agent).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS.
None
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<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No.73 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Washington in the District of Columbia on the 31st day of July, 2000.
THE COVENTRY GROUP
By: /s/ Walter B. Grimm
---------------------
Walter B. Grimm
By: /s/ Patrick W.D. Turley
----------------------------
Patrick W.D. Turley, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
----------- ------ ------
<S> <C> <C>
/s/ Walter B. Grimm President and Trustee July 31, 2000
------------------------
Walter B. Grimm** (Principal Executive Officer)
/s/ John H. Ferring IV Trustee July 31, 2000
------------------------
John H. Ferring IV***
/s/ Maurice G. Stark Trustee July 31, 2000
------------------------
Maurice G. Stark*
/s/ Michael M. Van Buskirk Trustee July 31, 2000
------------------------
Michael M. Van Buskirk*
/s/ R. Jeffrey Young Chairman and Trustee July 31, 2000
------------------------
R. Jeffrey Young****
/s/ Nadeem Yousaf Treasurer (Principal July 31, 2000
------------------------
Nadeem Yousaf**** Financial and Accounting Officer)
</TABLE>
By: /s/ Patrick W.D. Turley
--------------------------------------
Patrick W.D. Turley, as attorney-in-fact
* Pursuant to power of attorney filed with Pre-Effective Amendment
No. 3 on April 6, 1992.
** Pursuant to power of attorney filed with Post-Effective Amendment
No. 26 on May 1, 1996.
*** Pursuant to power of attorney filed with Post-Effective Amendment
No. 39 on July 31, 1998.
**** Pursuant to power of attorney filed with Post-Effective Amendment No.
63 on November 30, 1999.
C-6
